Archive for January, 2009

Polar Peril

January 31, 2009

As if the polar bears didn’t have enough things to worry about.

Business Week reports that Russia entertains high hopes for the North Pole and the better part of the Arctic Shelf, where Russian officials look forward to some day reaping vast reserves of gas and oil buried therein.

That shelf is right now divvied up into more-or-less equal shares among Canada, Denmark, Norway, Russia, and the United States. The hypothetical map looks something like this:

Arctic Shelf

Arctic Shelf

 Or, more precisely, some say it looks like this. Russia would like to increase its share by a good 463,000 square miles, an area three times the size of Germany. Artur Chilingarov, speaking on behalf of the Russian government, puts it thus:

“I will say it outright- we [Russia] will not give the Arctic shelf to anybody else… Canada or the United States may not like this… but this is my stance. It is historically our [Russian] shelf.”

Because most of it is supposedly Russia’s, Medevedev called for a new Arctic agreement last September – presumably one that gives Russia the lion’s share of ice. Medvedev clearly has some serious interest in this venture, because Chilingarov said further that Russia will keep up exploration of the region the global financial crisis notwithstanding: “The research will continue independently from the economic situation, because this is our future.

It’s obvious that Medvedev and company, who oversee a national economy that lives and breathes on the drilling and exporting of oil and gas, want to scout out new drilling sites in the polar regions.

This should be very worrisome news for environmentally conscious news readers the world over. Any oil industry takes a toll on environments near and far, to be sure. But Russia, in particular, can be a rough steward ecologically speaking. Look no further than Siberia, the tundra definitely in its grasp; Russia’s treatment of this patch of earth has been, well, less than stellar.

Might Mededev and company not supplement their fossil-fuel ambitions with some far cleaner ambitions of nuclear/solar/geothermal utilities? Time will tell how things unfold, for Russia and for the Arctic both.

Lowering the Guard

January 31, 2009

 

Worried about the health of Russian democracy? Then you should be pleased with President Medvedev. The “successor to Putin” made a few very noteworthy breaks this week with the authoritarian style of his judo-loving predecessor. Human-rights advocates can breathe at least two sighs of relief:

 

1) On Friday, the Kremlin announced the closing of 45 of the 50 offices of Nashi, the 200,000-strong militant youth organization founded in 2005 by pro-Putin official Vasily Yakemenko with these two stated missions: “protect Putin from antigovernment forces” -AND- “conjure patriotism in the hearts of the apathetic young.”

 

On the bright side, Nashi’s youth camps and public rallies enthusiastically encourage Russian young people to take up active roles in building a new Russia: They extol young men to join the army; champion marriage and childbearing; and celebrate Russia’s ethnic diversity.

 

But on the not-so-bright side, they also push a cult-like hero-worship of Putin, demonize anyone who criticizes Putin, and sabotage the campaigns of rival candidates. They’re known to occasionally cross the line into thug tactics, like when a gathering of Nashi members vandalized the Estonian embassy in outrage over its removal of a Soviet-era war memorial from its premises.

 

And on the just plain disturbing side, they get rewarded by their elders for blindly agreeing with whatever Russia’s president says. Nashi membership requires passing an applicant interview that grill would-be members for their views on every major policy issue: gas transit, Chechnya, the war in Georgia, etc. Those who pass get admission into Nashi and all the goodies that come with it: free cell phones, a complementary university education, and first preference for government jobs.

 

Get a feel for the movement for yourself, in all its flag-waving creepiness and its zeal for “ensuring the President’s complete victory,” at this link.

 

Patriotism and family values are great things. Suppression of independent thought isn’t. And neither is blind adherence to party ideology. An organization that promotes the latter two things deserves a minimal role in a modern democracy. Medvedev’s call on this gets my steadfast kudos.   

 

2) Also getting my kudos is Medvedev’s order Thursday to his staff that they revise a bill (one crafted originally by Putin, no less) that would have extended the definition of “treason” and “espionage” to “activities against the Constitutional order and state integrity.” As some human-rights leaders noted, this would have made possible the de-facto outlawing of just about any nonviolent protest or social-activism campaign that Russian officials didn’t like.

 

If the above sounds conspiratorial, then consider what befell one university student just the day before. As the story will tell you, police pressed the student’s university to expel him for his participation in a December 14 protest of government policies. University officials rebuffed them and kept the opinionated young scholar. But were any activity against the “constitutional order” to become treasonous, then the police would have very probably gotten their way.

 

These back-to-back liberalizations are a good portent for life in Russia in general. They signal that people are much more satisfied with things, and that Russian leaders can be very confident of continued popular support – thus, measures to suppress dissent strike them as no longer worth the time and trouble. This is logical. People who are optimistic about the future don’t need a lot of overhead control. They will support those who are in charge, convinced as they are that those in charge are making good things happen. It’s the desperate and frustrated that public officials need to worry about. Putin has done a good job of making people optimistic. And so it’s small wonder that, in the weeks before the presidential elections last March, fully 40% of poll respondents said that they would vote for whomever Putin picked as his successor, no questions asked. With the prospect growing dimmer and dimmer that the electorate will vote the Putin-Medvedev people out and bring some potentially inept presidential administration in (of which Russia has seen many: Andropov, Gorbachev, Yeltsin), thus undoing eight years of hard work setting things straight, Prime Minister Putin and President Medvedev can relax and enjoy the bounty of success.  

A Leaner, Meaner Budget Year

January 24, 2009

 

 

What’s good for Humvee drivers isn’t so good for the Russian economy. Thus indicates a Jan. 21 Duma report, which notes that due largely to falling oil prices, the Russian government has had to completely redraw its fiscal-year-2009 budget. It appears that the large budget surpluses Russia enjoyed in 2008 have morphed into huge projected deficits for 2009 and years thereafter, and that, like it or not, Russia has entered “the new epoch of the budget gap.”

 

Last year was a good year for overall for the Russian government, as its total 7.56 trillion rubles in expenditures ran well within the margins of its 9.26 trillion rubles of revenues. Fiscal-year 2009 was expected to be a good year, too. But some developments in the last few months—namely, economic recessions across the globe—changed that picture in a few dramatic ways:

 

1)      The price of oil fell from $95 per barrel in 2008 to $41 per barrel in 2009.

2)      Russia’s inflation rate rose from 8.5% in 2008 to 13% in 2009.

3)      Whereas 25.4 rubles equaled a dollar in 2008, 35.1 rubles equal a  

      dollar in 2009. 

 

What do these three shifts mean for Russian fiscal prospects? They mean that as things stand, Russia is looking at a 2009 budget shortfall somewhere between 1.5 trillion and 4.5 trillion rubles.

 

Russia’s Ministry of Finance sees the price of oil dropping even further, to $32 per barrel. If that happens, the ministry projects, then a forecast for a total 2009 budget shortfall above 4 trillion rubles would be “closest to reality.”

 

That is a scary number, considering that it’s almost one-half the projected 2009 expenditures (which stood last count at 9 trillion). But it may not be far off base. For the first time since 1983, according to Oil Market Report, demand for oil worldwide is actually set to contract this year—whereas the world consumed 85.8 million barrels a day in 2008, it will only consume 85.3 million barrels a day in 2009. And seeing as production topped off last year at 86.2 million a day, it becomes obvious that there isn’t much room for reaping any new profits.

 

It’s hard to imagine this being a permanent change. With world population still growing and the economies of China, India, and Brazil building new industries at rapid clips, it is inevitable that prices will at some point shoot up again. But that may not happen for some time, and certainly not before the present worldwide economic crunch draws to a close. In the meanwhile, it’s rough terrain up ahead for economies that are heavy on oil production, and Russia’s economy is no exception.

 

Russia 1, Ukraine 0

January 18, 2009

 

Vladimir Putin had a very good weekend. His counterpart, Ukrainian prime minister Yulia Timoshenko, didn’t.

 

That about sums up the two-day Russia-Ukraine summit that convened Saturday and Sunday to talk out the gas standoff; the summit wrapped up with Ukraine giving Russia just about everything Russia had wanted.

           

The deal:

– Ukraine will pay the 80% of the rate that Europe pays for Russia’s natural gas this year and next. Since the going rate in Europe is now 339 Euros per 1,000 cubic meters of gas, this equals 271 Euros per 1,000 cubic meters of gas.

– Starting 2010, Ukraine will pay 100% of the rate Europe pays.

– Russia will pay Ukraine’s Naftogaz the same transit fees it paid in 2008.

 

“We had come to a mutual understanding,” Tymoshenko said to reporters after the talks.

 

There’s nothing mutual about it.          

 

Remember that this 271-Euro rate equates to 79% of what Russia had initially asked for (which was 336.8 Euros per 1,000 cubic meters). And it’s more than double what Ukraine was paying last year (which was 134 Euros per 1,000 cubic meters).

 

Put another way, Gazprom gets more than three-quarters of what it had hoped for, and Naftogaz gets a heating bill roughly twice as high as it was the year prior. Pleasantries aside, the Ukrainians got rolled.

           

No surprises here. Ukraine has nothing on its northern neighbor. Its economy is heavily dependent on, and heavily subzidized by, Russian business interests. It is Russia who is funneling 130 billion cubic meters of natural gas through Ukraine every year, not the other way around. And it is Ukraine who is going without gas as of January 1, not the other way around.

 

Moreover, Timoshenko has some credibility problems at home, judging by this Gallup poll in which the majority of Ukrainians say Russia is in the right 

 

Timoshenko is probably worried about her credibility in mainland Europe as well, much of which is shivering because her country’s economy cried poor when its gas bill arrived. Sooner or later, the gas will start flowing again, but consumers in most of the countries on the receiving end of Gazprom’s spigots may entertain some longstanding doubts about whether they really want one-fifth of their gas running through such a demonstrably unreliable route as Ukraine.

 

This sullied reputation may cost Timoshenko’s government a lot of potentially juicy new deals down the road—not the least of them being South Stream, the proposed international natural-gas pipeline whose future route is expected to trace either through Turkey or through Ukraine. By the looks of things now, I’m putting my money on Turkey.

 

What’s at stake…

January 17, 2009

World-power status or total collapse—one or the other. This twenty-first century is make-or-break for the Russian Federation, and the stakes couldn’t get much higher, for its people or for the whole world.

Since the 1980s collapse of the Soviet system and the resultant plunge in national living standards that came with it, Russia has undergone a frightening trend of nonstop population atrophy. World Bank data records Russia’s population shrinking at a steady -0.2% a year throughout the 1990s, from 148.3 million in 1990 to in 143.1 million in 2000. The atrophy picked up pace to -0.5% a year after 2000 through the present. By 2015, the World Bank projects only 136 million remaining Russians.

 

The CIA World Factbook notes the fundamental problem, the ratio of births to deaths that, as of last year, tilted heavily toward death As of 2008: 16 Russians dying for every 11 born.

 

A country can compensate for too few births if it has a sufficiently steady stream of immigrants. Russia, unfortunately, does not. The Factbook reports Russia’s net migration rate, defined as the rate of immigrants per every 1,000 residents, to be a meager 0.28. It takes 73rd place out of 173 countries, trailing all of Western Europe, and a mere six rankings ahead of the Gaza Strip:

 

67

Cyprus

0.42

2008 est.

68

Bahrain

0.40

2008 est.

69

Belarus

0.38

2008 est.

70

Namibia

0.35

2008 est.

71

Oman

0.33

2008 est.

72

Slovakia

0.30

2008 est.

73

Russia

0.28

2008 est.

74

Uganda

0.21

2008 est.

75

Taiwan

0.04

2008 est.

76

Argentina

0.00

2008 est.

77

Gibraltar

0.00

2008 est.

78

Benin

0.00

2008 est.

79

Gaza Strip

0.00

2008 est.

Source: CIA World Factbook.

 

A nation as vast as Russia cannot survive if it keeps losing population at this rate. It takes population to keep a workforce running, keep infrastructure in operating order, staff police and civil-service agencies, and fill the ranks of the military. Too few people left over, and what is left of its civic society may one day come crashing down.   

 

Russian leadership can avert this dire future by doing two things: raising living standards and encouraging more immigration. Both take capital, and lots of it. In short, the leadership must create very large amounts of new revenue very quickly if it wants Russia to survive, let alone thrive, in the twenty-first century. This is a drastic order that could take drastic actions to fulfill, maybe even actions that Westerners do not like. But it has to be.

 

Vladimir Putin was well aware of all this from the get-go, and he has done much over the years toward creating that needed capital, both while president and now as prime minister: restructuring the economy; securing the cooperation of provinicial governments; bringing the law down upon lawbreaking oil tycoons; securing a solid market position for Gazprom; and projecting the strong public image necessary to win the confidence of Russia’s people.   

 

A lot has been written in the West about Putin. Most of it pretty bad: He’s “an autocrat”; he’s “suppressing Russia’s nascent democracy”;   he’s a “dangerous” man with a predilection for “abuse of power.” And he’s “no friend of the United States,” to boot.

 

But the numbers, also from the Factbook, speak for themselves:

  • nine consecutive years of economic expansion at an average of 7% a year
  • 10% annual growth in capital investments
  • 12% annual growth in personal incomes
  • a federal budget surplus of 3% at the end of 2007
  • increase in foreign direct investment from $14.5 billion in 2005 to $45 billion in 2007
  • And Russia’s transformation into a powerful mover-and-shaker in the energy field, exporting 5.1 million barrels of oil and 237.2 billion cubic meters of natural gas a day

The last point is the most significant, for ours is a world that will be in huge and huger need of oil and natural gas in decades ahead. Should Russia’s economic risorgimento continue, it will be in a tremendous position to provide. It is a cornucopia of oil and natural gas both. And an up-and-coming dynamo of industry, metallurgy, and software infrastructure in the making. It is Russia, and any serious study of where the world is headed would do well to take it into account. 

Hope for Chechnya’s “lost” youth

January 11, 2009

 

Children in the First World beg their parents for new IPhones, Ipods, and video game consuls. Many of Chechnya’s children would be content to just have some new prosthetic limbs.  

A widespread shortage of artificial arms and legs – one of the grisly legacies of Russia’s long war against the secessionists – is one of many reasons that Chechen-born surgeon Khassan Baiev decided to leave his adopted home in the United States and go back. 

 

Baiev now works around the clock to treat the infected wounds, disfigured faces, and shattered limbs that tens of thousands of Chechnya’s young people incurred during the combat years. The ongoing traffic of patients has him averaging 40 operations a day.

 

That Baiev is so busy should surprise no one, for most of Chechnya’s physicians fled in the wake of Russia’s first 1994 invasion. Baiev stayed, the only trained surgeon to be found in most parts of the country.

 

Wounded Russians got treated, too – he made a point of not taking sides. But that didn’t keep him from being a target. Russian troops and Chechen militants both made frequent attempts on his life. By 2005, he had to call it quits and take refuge in America.

 

But in December 2008, with the fighing over, he got the opportunity to resume his work. He took it, and set up shop in the shattered country to begin again his daily onslaught of diagnoses and treatments. Filmmaker Tim Tate accompanied him during some of his recent rounds and compiled this excellent video, which broadcasts now on Al Jazeera. Do be forewarned – it is not for the faint of heart:

 

 

Gazprom: Can’t Live With It, Can’t Live Without It

January 6, 2009

Monday can’t come soon enough for residents of hundreds of thousands of homes across Europe. That, according to the BBC, is the day when their heat might turn back on.

Heating went off last week when Russia turned off all four of the pipelines that convey Russian natural gas to buyers in Ukraine and around the continent. Russia took this very hardball action because Ukraine, who contracts year-by-year with Russian state-utility Gazprom to be the conduit for 80% of the natural gas Gazprom ferries via pipeline to consumers in Ukraine and throughout Europe, wouldn’t settle on terms for a contract for 2009. Naftogaz, the Ukrainian oil utility, considered Gazprom’s asking price of 336.8 Euros per 1,000 cubic metres of gas too steep. It thought likewise of Gazprom’s alternative offer of 187 Euros per 1,000 cubic metres. Russia’s negotiating tactics, which included a few unfounded accusations that Ukraine was stealing gas, did little to bring Naftogaz around. Ergo, no contract. And ergo, no gas. Ukraine’s consumers lost out. So did the consumers in 14 other countries that had done nothing wrong except be in need of some gas.  

 

Today’s accord takes firm measures to prevent any more unproven stealing by Ukraine: Monitors from the EU, Russia, and Ukraine will watch to make sure the Orange Republic behaves itself. Note that the good behavior will not in itself get Ukrainians their heat back. According to the Kyiv Post, they will have to do without until Naftogaz and Gazprom come back to the table and work out a new contract, however long that may take 

 

 

Russia is the supplier of one-fourth of Europe’s natural gas supply. That puts it in a position to do many things, including turn the gas spigots on and off at will. I grant that not everyone sees it that way. A few commentators have made some stern-sounding noises about the damage they think Russia has done to its own reputation and the consequences they expect it will reap. Bronwen Maddox, writing in The Times of London, sees it thus: “(Russian prime minister) Putin may have persuaded some on Europe’s eastern fringe of the need to mollify him,” he wrote. “But in the EU, he is more likely to have united those he once divided, and to have persuaded them urgently to cut their dependence on Russian gas.”

 

Take these commentators with a grain of salt. Europeans are hopping mad. But being mad at Gazprom does not equate to firing Gazprom. One quarter of natural gas is a lot of energy. If you are going to swear it off, then you will need to find a very sizable replacement. Where is that replacement now? Hard to say. The Nabucco pipeline, planned to run through Turkey to channel gas from Central Asia and the Caspian Sea, will supply enough gas to meet no more than 5% of Europe’s energy needs. It would take five Nabuccos to equal one Gazprom.  

 

Not to mention that the fledgling banana republics of Central Asia are hardly stable business partners themselves. Quote BBC: “EU officials say that even during the Cold War the Russian gas supply was stable, so it is better to rely on Gazprom than potentially unstable sources such as Turkmenistan and Uzbekistan.”

 

Not coincidentally, there are already plans underway for two new Gazprom pipelines into Europe. These, when constructed, will bypass Ukraine altogether: 

1) Nord Stream, which will run 1200 kilometers along the Baltic Sea. Dutch company Gasunie and German firms E.ON Ruhrgas and Wintershall are partnering on the project.

2) South Stream, which will run under the Black Sea. Italy’s ENI is partnering. 

 

Ultimately, this whole affair will probably work out very well for Russia and very badly for Ukraine. The former will continue to be an irreplaceable source for much of Europe’s natural gas, through one pipeline or another. The latter will find itself somewhere between a rock and a hard place – the rock being high fees it is loathe to pay, the hard place being its removal from the gas transit altogether and a swift plunge into economic irrelevance.