Russian oil producers, pipelines and ports are certain to be badly hit if the United States forces a regime change in Iraq and, consequently, world oil prices fall sharply. And that’s only scratching the surface of the threat to the Russian economy from an American war on Iraq, and all that would follow.

Understanding this should be an antidote to a spate of recent reports in the Anglo-American press. These claim that, behind the curtain of the United Nations Security Council, the Russian government is negotiating a secret deal with the United States to trade Moscow’s concession for war to start, in exchange for Washington’s guarantee to secure Russian oil company concessions in Iraq, or to pay a matching indemnity. No matter how the value of Russia’s interests in Iraq may be summed up, and never mind how unreliable and unpredictable the Bush administration’s undertakings are understood to be, the cost of oil prices’ collapse to the Russian economy is certain to be greater than any promised indemnity. (more…)

by John Helmer - Saturday, October 11th, 2003
No Comments »

If you believe what you are told about Russia in virtually all the world media at this moment, President Vladimir Putin is an isolated savage fighting a last-ditch battle against the forces of advancing civilization, out¬numbered, out¬gunned and doomed. If Putin — and a handful of his advisors — represent the last of the Mohicans, then who exactly are the advancing redcoats, and are they the civilizing force we’ve been told they are?

So far, Mikhail Khodorkovsky, the chief shareholder and CEO of oil company Yukos, has positioned himself in the domestic and foreign media as the force of civilization that Russia badly needs. Much of Prime Minister Mikhail Kasyanov’s cabinet has allied itself with him. It’s peculiar then that,unlike the redcoats of the original Fennimore Cooper story of the American Indians versus the British and French invaders, this Russian claims that it is in his country’s interest that he should sell effective control of one of Russia’s largest oil assets to an Americar oil company.

It is stranger even that ExxonMobil should believe Khodorkovsky when he told them to visit Kasyanov to ask if he would approve such a deal, the value of which is roughly estimated to be about $25 billion. Khodorkovsky also claims that he received Putin’s approval for a sale to an American oil company. That Putin has changed his mind since then is obvious. But why would ExxonMobil go to Kasyanov if it already understood that Putin was the man in charge?

The answer is that Khodorkovsky and his mostly American advisors believe they can lay siege to the Kremlin and force Putin to surrender if they can demonstrate — mostly via the press, but also through fireside chats with the likes of Henry Kissinger, whom Putin met in New York — that there is no support for Putin’s opposition to Yukos. Khodorkovsky is figuring that the Americans, the media and the Russian politicians he has on retainer are enough to topple Putin. Although the Kremlin walls are thick ones, that’s the firepower the Yukos redcoats are betting on.

And so, last week Khodorkovsky stoked speculation on the Russian stock market and fed the ever-obliging Financial Times the line tha the ExxonMobil deal was only a whisker away. Khodorkovsky’s minions misread Putin’s remarks to the New York Times in an interview published on Oct. 6 and tried to cast last week’s police raids on Yukos as a sign that Putin was close to surrender. Khodorkovsky has been buying press coverage for so long, he’s forgotten that everyone in Russia — except himself — believes everything they read to be false.

What Putin said was clear: “we have a category of people who have become billionaires overnight, as we say. The state appointed them as billionaires.” The corollary was that the state would decide what is to happen to them next, not the media, which — Putin added — have been “subjugated — in the same way that the oligarchs behaved with natural resources.” Asked specifically what he intended to do about Khodorkovsky’s proposed sale to ExxonMobil, Putin drew the distinction between foreign investment in new oil projects and foreign shareholding control of Russian oil assets. If he was the last of the Mohicans, this was no forked tongue — he was speaking confidently and categorically. He was reminding Khodorkovsky that he, like Mikhail Fridman and German Khan of Tyumen Oil Co. and Abramovich of Sibneft, have failed to invest in long-term oil prospecting or new oilfield production outside the areas that were developed by the Soviet state. That task has been left for international companies to undertake, while the Russian oligarchs awarded themselves huge dividends and leveraged their companies with mounting debt. The state has so far refrained from taxing that dividend outflow as most other European and American governments do — through capital-gains or dividend-remittance taxes. Putin knows that he doesn’t have a single minister in the cabinet, and certainly not a prime minister, or even a presidential chief of staff, who would countenance such proposals and who can be trusted not to betray the president’s orders. At least, not for the time being.

And so, all Putin has been able to do is to pursue his policy with the only means available to him. If it takes a prosecutor and a policeman to inform Yukos, ExxonMobil and the world that, in Russia, as everywhere else in the civilized world, it will be the government that must decide on what terms Russian natural-resource assets can be swapped, pledged or sold, then that’s who must deliver the message.

“We favor foreign capital involvement in Russia’s economy,” Putin told his U.S. interviewer. “ExxonMobil is operating in the Far East, in Sakhalin, it is involved in investing a lot of money there, and we will support their further activities there. As regards purchasing part of the Yukos company, again this is a corporate matter, but once again we are talking about a possible major deal here, and I think it would be the right thing to do to have preliminary consultations with the Russian government on this matter.”

Only a fool would imagine that when Putin spoke of the government, he meant Kasyanov.

And so, when Putin chose to speak next on the same subject — at the Yekaterinburg summit meeting with German Chancellor Gerhard Schroeder on Oct. 9 — Putin was addressing all the fools. According to a wire-service report, “the president stressed that the gas pipeline system of the Russian Federation was ‘the offspring of the Soviet Union,’ and only Russia could ‘maintain it in working condition, even regarding its parts outside the country.”We will not divide Gazprom,’ Putin said. He added that the European Commission should have no illusions on this account. ‘In the gas sphere, they will have to deal with the state,’ the president stressed.”

What Putin said about the gas sphere applies no less forcibly to the oil and the mining spheres, to Yukos, Norilsk Nickel, Russian Aluminum and Siberian Ural Aluminum; to Khodorkovsky, Fridman, Vladimir Potanin, Oleg Deripaska and Victor Vekselberg.

This is not surrender talk from the last of the Mohicans.

However, it is a disgrace and shame to Western media like the Financial Times and of virtually all the Russian media, the Russian parliament and Kasyanov’s cabinet that Putin has been made to appear to be waging this fight for a national-resource and investment policy, virtually unsupported and apparently alone. If the truth were to be known, Putin has been getting the support and technical advice he needs from those who are not so vain or corrupt that they want to disclose their names. Khodorkovsky has bought the silence of the Communist Party and of others in the parliamentary election race who might have debated the resource-policy issues as they deserve to be. But the Kremlin knows that there is a broad and deep popular resentment against the oligarchs that will favor the policy Putin has been maintaining in recent weeks. He knows the economics of this resource policy have been tested and proven from Japan and South Korea to France, the United Kingdom, even California. Whatever lineup popular Russian resentment produces in the new State Duma will not affect the fact that, after the presidential election next spring, Putin will be the government, and Khodorkovsky will have lost.

Thus, there is no point now in Putin or his trusted circle of advisors responding directly to Khodorkovsky’s publicity campaign. Whoever will be stronger after the election, he won’t be. And when that is clear, the Duma deputies for whom Yukos has paid will turn tail.

by John Helmer - Saturday, October 11th, 2003
No Comments »

MOSCOW – In a well-known Russian anecdote, a police investigator is questioning the son-in-law of an elderly lady who has been found dead. “Why did she die?” the policeman asks. “Because she ate poisoned mushrooms,” the son-in-law replies. “So why is her body covered with bruises?” the policeman asks. “Because she was stupid, and didn’t want to eat,” the son-in-law says.

Russian politics are more than a little like the old lady.

It is now one month into the parliamentary election season, with just eight weeks to go before polling day. Each day, the electorate is being pummeled by multimillion-dollar propaganda campaigns, which include the manipulation of voter polls designed to generate the impression of fake groundswells of opinion. Almost every nuance has been professionally anticipated, diagnosed and neutralized with as much election technology as money can buy.

If you look at the headlines of Russian newspapers, or ask ordinary voters, you’re bound to conclude that one of the dominating issues at this stage of the campaign is whether the oligarchs — the handful of men who acquired Russia’s major energy and mineral assets on the cheap and are now trying to sell them off to foreign buyers — should be allowed to get away with the cash for the second time in five years. I say the second time, because the ruble crash and bank default of August 1998 allowed oligarchs like Mikhail Khodorkovsky (remember Menatep Bank?) and Vladimir Potanin (Uneximbank?) to rid themselves of bad billion-dollar wagers their banks had made and expand the difference between their onshore costs and offshore profits — all at the expense of most Russian savings. Ordinary Russians haven’t forgotten that.

If, next, you ask the leaders of the major political parties running for seats in parliament two questions about this subject, you might think their answers would address what is on the minds of the voters. In order to understand what Russian politicians, especially those who say they are campaigning in opposition to the government, think the voters should hear, I have spent a month asking one question about the oligarchs and one about what is to be done about them. What should be on the tip of every Russian politician’s tongue right now, if not the answers to these two questions?

1. Do you or does your party approve of the sale of a strategic shareholding of Yukos to a foreign oil company?

2. Do you or does your party support taxing the oligarchs’ wealth, such as a capital-gains tax, a tax on foreign remittances of profit or a superprofit tax?

Fatherland and the Liberal Democratic Party of Russia (LDPR) are usually classified as pro-Kremlin in the way their members have voted in the Duma now coming to an end. Fatherland contested the last Duma election in opposition to its current ally, the United Russia group; in this campaign, they are indistinguishable. Together, they claim a 40 percent share of the current Duma’s seats. The best the pollsters are projecting for them in December is 37 percent. The LDPR currently has a 3 percent share of the Duma’s seats, but the polls are suggesting a harvest of protest votes to propel them to 14 percent.

When they campaign for votes, Fatherland – whose name in Russian, Otechestvo, suggests the fatherland, motherland, patriotism and nationalism — and Vladimir Zhirinovsky, the only public figure recognized by LDPR voters, act as if national policy ought to rule out the massive transfer of Russian wealth abroad. You would guess that both parties should find it easy to answer yes to both questions, even if they might be a trifle uncomfortable with the details.

At Fatherland, the party spokesman found the questions so surprising that he asked for them to be submitted by e-mail. That was done many days ago. There has been no reply. At the LDPR, the spokesman for the party and for Zhirinovsky refused to answer either question. That’s because, he said, “we are not ready to provide a new economic program, and we don’t comment on any suggestions in the economic-policy area.”

In the ideological center of the Russian political lineup, there is Yabloko, the oppositionist party led by Grigory Yavlinsky. He commands a 4 percent share of the retiring Duma; his projected share in the new one, if the polls are right, would be only 3 percent. Yavlinsky was once a professional economist. A month ago, his spokesman, Maxim Zubilin, said that it was a little early to answer the questions because “our election program is not quite ready.” Regarding taxes, he said, Yabloko is “a consistent advocate of cutting them, all taxes, starting with value-added tax. The reason for this is that the decrease of taxation will help move capital out of the shadows.” But what if capital moves out of the shadows — and out of Russia, too? To Zubilin, this sounded like “a way of sharing with the people” and was definitely not Yabloko’s idea. On the other hand, Zubilin acknowledged that there may be a problem of capital leaving Russia and that “we think it should be prevented through economic, not administrative, measures.” So what about taxing capital gains and foreign-profit remittances? Zubilin wouldn’t answer.

And what about the number-one question on everybody’s mind — the Yukos question?

Zubilin seemed crestfallen. “Regarding the possibility of the sale of a strategic share in Yukos to foreigners,” he said, “I think the party doesn’t have an official position.” Zubilin then added that “Yukos is a private company, and the sale of its shares to foreign investors is its own affair. Yukos is one of the most transparent companies in Russia. The wish of U.S. investors to invest money into this company is a good proof of that.” Since Zubilin’s reliance on U.S. investors to decide Russian economic policy seemed an odd pitch for Russian votes, I decided to try Yabloko again — after the foreign press had put the Yukos sale to ExxonMobil or ChevronTexaco on the front pages, and after President Vladimir Putin had been to the United States to chat about the matter with President George W. Bush — and Henry Kissinger over dinner at the latter’s New York apartment. This time, Yabloko’s spokesman was more cautious. He requested that the questions be sent by email. Two weeks have passed, and there has been no reply.

Yabloko thought that Sergei Glazyev, the former economist who is heading the Motherland party, might be in favor of taxing the oligarchs’ wealth and even of preventing Khodorkovsky from selling his shareholding. In 1996, Glazyev, then head of economic security on the Kremlin’s Security Council, came out against the methods by which the oligarchs had acquired their assets through phony privatization and against the uses to which they put their capital. But that was then. What about a month ago, when Khodorkovsky was reported to be selling 20 percent of Yukos for about $11 billion to ChevronTexaco?

I must have picked the wrong day, because Glazyev’s spokesman said that he wouldn’t answer until Sept. 22, when he planned to release his economic program. I called back last week, long after the program had had time to mature and after Khodorkovsky was now telling his friends at the Financial Times that he was selling a 40 percent stake of Yukos to ExxonMobil for $25 billion. Anna Gorbatova is Glazyev’s spokeswoman, and, from what she says, she feels sorry for him. On the one hand, she says, Glazyev is too busy to answer questions. On the other hand, he is traveling and too tired to answer his mobile phone. If he had the chance to review the questions by e-mail, Gorbatova said, the poor man might be able to give an answer in two weeks.

Glazyev is a frail fellow with a thin-reed voice that could easily fail under the pressure of campaigning. It’s perhaps just as well that he has the burly Dmitry Rogozin, with plenty of stamina, as the number-two candidate on the Motherland ballot. Rogozin has always presented himself as an ardent nationalist — with military overtones, when he managed the first of Gen. Alexander Lebed’s political campaigns. Since then, Rogozin has matured into the chairmanship of the Duma Committee for International Relations, where dealing with foreign policy is his daily bread and butter.

Surely, if anyone in the election campaign had a view on the Yukos question, it would be Rogozin. He sent his spokeswoman Olga Sagoreva to the telephone. But she was almost as sorry for Rogozin as Gorbatova was for Glazyev. “Rogozin,” she apologized, “is firstly a politician, and not very good with economic questions.” If a candidate for public office is no good at something, it’s a relief to hear it first from his closest associates. But there is no point beating around the bush — Rogozin doesn’t have an opinion to pass on to voters about taxing the oligarchs in general or dealing with Yukos in particular. His spokeswoman thought that it might be useful if I asked Glazyev, because she thought he might not be as bad at economics as Rogozin. She also invited an e-mail. There has been no reply.

Glazyev has positioned himself as the young left-leaning voter’s alternative to the Communist Party of the Russian Federation (KPRF). He insists that he is neither on the take from the Kremlin nor from the anti-Communist corporations to split the Communist vote and diminish its voting power in the new Duma. But what to make of the KPRF itself? It’s noteworthy that, on the 18 candidate Communist federal list that voters will see on their ballot papers, there is one, Sergei Muravlenko, who is a former chairman of the board of directors of Yukos, and another, Alexei Kandaurov, currently head of an analysis department in one of Yukos’ corporate divisions. They are on the KPRF ballot, according to party officials, because they are “old party comrades,” not because they are from Yukos. So what does the old party think of Khodorkovsky’s attempt to transfer his capital to an American corporation?

Ivan Melnikov is the party’s campaign voice, and he doesn’t like to lose it. On the one hand, he wants to address the questions, so he has asked for them to be sent by e-mail. On the other hand, he doesn’t want to answer them. Indeed, Melnikov has evaded answering these two questions for more than a month. As an associate of Melnikov’s at KPRF headquarters explains, he will continue to refuse to answer the questions, but avoid looking like he is doing so.

The KPRF is reputed to be the strongest opposition party in Russia, maybe the strongest party of them all. Current polls give it a projected 37 percent share of the new Duma. That is not only up on last month’s poll projections, but also double the party’s current Duma strength. Allowing for the exaggeration such polls are meant to convey — to galvanize a wave of anti-Communist energy from the electorate — it does appear that there may be a tidal wave of opposition sentiment coming in December, If so, it’s hardiy good news for the government and the Kremlin. That is, if you believe the way the sides and choices of the political campaign have been portrayed by the government’s propagandists. But what if there is no opposition, because, on the burning issues of the day, there is no one in the campaign who will give voters the answers to two of the most obvious questions of all?

Ever since Khodorkovsky began to feel the heat for his attempts to cash out and secure U.S. backing for himself, his capital and his ambitions, he has told his supporters that the real reason for his confrontation with the Kremlin is politics, not economics. According to Khodorkovsky and his supporters, he has been spending too much of his company’s time trying to influence the outcome of the Duma elections and buying votes and candidates, threatening the Kremlin’s strategy for a majority parliament of its own. In short, Khodorkovsky has claimed that his sale of Yukos is being blocked because he is threatening to create a political opposition all of his own. To this end, he has been reported to have bankrolled Yabloko, the KPRF and, possibly, other candidates as well.

If this is true, the money appears to have bought nothing but silence so far. But the tongue-tied candidates do tell one thing: If they don’t dare campaign on the issue of the Yukos sale, then the only choice in Russian politics doesn’t include them. So, let’s call off the Duma election — it’s nothing more than the poisoned mushroom in the well-known anecdote. Let’s go straight to the only real choice that Russians have to vote on — Putin VS. Khodorkovsky. The Russia Journal

by John Helmer - Monday, October 6th, 2003
No Comments »

MOSCOW – The colors of the Russian flag change under pressure.

Czar Alexei Mikhailovich, father of Peter the Great, is believed to have been the author of the first white-blue-and-red tricolor in 1668. An English captain, engaged to command the first naval protection vessel in the Russian fleet, asked the czar to choose a flag, because, he told Alexei, all states have flags, and if Russia, which wasn’t flying anything at the time, was a state, it had to have one. Alexei studied the flags of other countries; picked a variation by changing the order of the colors; and hoisted it on what was then a tiny navy for the Volga River and the Caspian Sea.

Peter issued a fresh decree in 1705, ordering this flag to be flown on all Russian merchant ships. One hundred and fifty years later, Alexander II changed the colors to black, yellow and white. These lasted only 25 years, until 1883, when they were eliminated with another change of czars, and the tricolor restored. The communist revolution pulled it down and replaced it with the red flag in 1918. By the end of the 1980s, the old tricolor had become a symbol of the anti-communist opposition. Boris Yeltsin wrapped himself in it during the Kremlin putsch of August 1991. Two years on, after he destroyed parliament in 1993 and rewrote the constitution, Yeltsin issued a decree making the tricolor Russia’s lawful flag. It took the Duma another seven years to adopt this in a constitutional law.

These days, Russians tell an anecdote about a request from Coca-Cola to President Vladimir Putin to change the flag back to red. “We aren’t opposed to the idea that Russia will have the red flag again,” Coke’s chief executive officer telephones Putin from Atlanta to say, “but can you write ‘Coca-Cola’ on it?” “Wait a minute,” Putin says, and puts the American on hold. On another telephone, the Russian president then calls his prime minister, Mikhail Kasyanov. “What is the termination date of our contract with Aquafresh?” he asks.

If the Russian revolution that has been simmering since 1991 is about to start redistributing power and wealth once more, then watch the colors on the flags. The slow transformation, which began under the red during Mikhail Gorbachev’s perestroika, was halted by Yeltsin. He introduced two forces unconnected at the time to the Russian people – a foreign power determined to destroy the Soviet military-industrial complex; and a group of concessionaires, whom Yeltsin licensed to rob the country blind on two conditions – that they should pay him a modest commission, and that they should not turn against his foreign protector. Like the insignia on the front of every Russian officer’s hat, Yeltsin tried placing one state symbol on top of another.

The symbols went awkwardly with one another, as Putin himself acknowledged when he spoke shortly after the tricolor was signed into law. He was against abandoning the old (red) symbols, he said, otherwise “a whole generation of our citizens, our mothers and fathers, lived a useless, senseless life and lived it in vain. I cannot agree with this in my heart or my mind.”

Indubitably, the Yeltsin period accelerated the rate at which the red generation would disappear, to be replaced by the white-and-blue one. According to the Russian heraldic website, the white on the current flag stands for virginity and cleanliness; blue for faith, fidelity and stability. In order to find out what those who control Russia think of these symbols, I asked the oligarchs to say what colors they prefer in their suits, shirts and ties.

They, or their spokesmen, are reluctant to say. LUKoil said the question was a personal one, and Vagit Alekperov, who heads the company, the largest oil producer in Russia, wouldn’t respond. The spokesman for Vladimir Potanin at Interros, through which Potanin controls Russia’s largest mining company, said he couldn’t tell. At the office of Severstal, one of Russia’s most powerful steelmakers, no one would venture a guess about the color preferences of Alexei Mordashov, the controlling shareholder; nor would anyone dare to ask him. At the office of Oleg Deripaska, the aluminum oligarch, there was another case of color-blindness. For Mikhail Khodorkovsky, the controlling shareholder of Yukos oil company, a source hinted secretively that his color preference was blue for suits, red for ties.

In ancient times, red was the favorite, combined with white and black. There is even evidence that the Greeks and Romans didn’t see blue at all, not as we know it; not even in the rainbow. Blue became a revolutionary color, starting in the Middle Ages. And it was the American Revolution of the 18th century that began the fashion for wearing the three colors in combination. The American flag was an anti-flag; maybe if the British flag hadn’t been red, white and blue since 1603, the Americans would have picked another set of colors. And then the French officers, who fought in the American independence war against the British, might have taken a different combination back to Paris, in time for the French revolutionists to adopt the tricolor for themselves.

But Khodorkovsky isn’t a revolutionary. He is doing no more than continuing what Yeltsin started, and trading the Russian wealth he picked up for a US guarantee of protection. You might say that the white in his tricolor stands for surrender. Khodorkovsky, after all, along with the controlling shareholders of the other major private oil companies, Sibneft and Tyumen Oil Co, are alone in the Russian oil sector in seeking to sell out to foreign buyers. LUKoil, Rosneft and Surgutneftegas are arguably as valuable, but their controlling shareholders haven’t rushed for the exit.

That the US oil companies to whom Khodorkovsky has applied cannot contemplate paying the Yukos price without the protection of both Putin and US President George W Bush is already obvious. That Khodorkovsky claimed to have Putin’s permission earlier in the year is something Khodorkovsky told his associates on the board of Yukos. That he no longer has Putin’s permission was clear when Putin briefed US media correspondents at the Kremlin, ahead of his trip to the United States this week.

And so, when Bush asks Putin what he thinks of cooperation in the Russian oil sector, Putin should pull out his coloring book, and hand Bush a crayon – a blue one – and show him where the map has already been colored red. And if Bush isn’t to confuse white, the color of virginity and cleanliness, for a blank waiting for Bush to color in with his pencil, Putin can remind him gently that not everything in Russia is open to US takeover.

by John Helmer - Friday, September 26th, 2003
No Comments »

La Fontaine told a fable of two donkeys who came to misfortune.

The first, the vain one, was carrying a load of cash; the other, a load of oats, On a lonely road, they and their masters were suddenly surrounded by thieves who weren’t interested in the oats. After making off with bearer for dead, the dying ass said to his companion that his end was unfair. Replied the humbler of the two:

“Wealth cannot always at the poor man scoff.

If you had been content to do as I,

You’d not at present be so badly off,”

In China this week, Prime Minister Mikhail Kasyanov could do worse than hum that little jingle. It might help him face up to a conflict his Chinese hosts appear to understand better than he does and are becoming impatient at Kasyanov’s apparent inability to solve it. This is the conflict between Russia’s oligarchs and their supporters who dominate the export of resources and those who favor heavy taxes on the resource industries to fuel capital investment in diversified Russian industry,

The policy conflict has immediate implications for the Chinese government and for Japan and South Korea as well, because their interest in expanding imports of Russian oil, gas, metals and other resources is running into stumbling blocks that start with Kasyanov’s inability to make decisions between the warring lobbies in Moscow,

A fresh statement of the oligarchs’ point of view has just been issued by Moscow-based investment bank Brunswick UBS, In a report titled “Russia: One Foot in Europe, One in Asia,” analyst Al Breach argues there is “an impending shift” in the direction of Russia’s export growth toward Asia, especially the “Confucian trio” of China, Japan and South Korea. “The important point for Russia,” Breach writes, “is that the economies to its eastern borders are likely to become bigger than its Western neighbors in the next couple of decades, Since they are each big importers — and expected to become more so — of many of the raw and semi-processed materials that form the backbone of Russia’s exports, Russia is looking at a huge and ready market just beyond its borders.”

While the report stops short of recommending government backing for the resource exporters to Asia, it implies that the Russian corporations best-positioned to take advantage of the predicted expansion of Chinese demand are the oligarch-owned oil, metals and mining companies, Tellingly, there is no reference to the prospects for Russian arms and heavy-machinery exports in Asia, nor to the concerns that Russian manufacturers have towards the competitive pressure of low-priced Asian imports. From diamonds to electricity, copper concentrate to gas, the resource exporters °argue that they should be free to export without limitation. Their critics argue that, if the current approach is not modified, the domestic industries will be starved of raw materials, and driven out of business,

At the moment, according to Russian trade data, 68 percent of Russian exports go to Europe and 8 percent to the Americas. China accounts for just 7 percent, Japan 2 percent, South Korea 1 percent and other Asian destinations 9 percent, Asian exports are still a minor part of the Russian trade picture, although the precise dollar values are skewed because Russian exporters undervalue their exports when they clear Russian customs and move their profits offshore to avoid Russian taxation. In the six months to June 30, for example, Russian statistics value exports to mainland China at $3,6 billion. Chinese import data show the figure to be 31 percent higher, at $4,7 billion.

According to Breach, the growth of China’s oil consumption will be massive, at an average of around 600,000 barrels per day (that’s a growth rate of 25 percent per annum), while growth in Russia’s annual production will kick off from 8.5 million Barrels per day (bd) of present output to 10 million bd by the end of the decade. That’s a Russian growth rate of about 215,000 bd per annum, or 3 percent per annum.

Breach believes the fit is obvious. Russia’s eastern Siberian, offshore Sakhalin and eastern Arctic oil reserves need substantial capital to come onstream, which the major Russian oil companies have refused to provide. They have concentrated instead on lifting Soviet-discovered oil from the western Siberian basin, exporting it to Europe and taking their trade profits and huge cash dividends offshore to the private accounts of their shareholders. Breach implies that Russia can afford to meet China’s demand and, also, Japan’s need to diversify its oil sourcing away from the Middle East; but only if the Kremlin gives way to the current demands of the oil company oligarchs. These include the demand to allow construction of pipelines by private investors to the Asian markets — principally China and Japan. A more fundamental and controversial demand is for the Kremlin to allow the oligarchs to cash out of their shareholdings and allow foreign oil companies to take over the task of raising capital and developing new fields.

The fight over the cash-out option is the impetus behind the Kremlin’s crackdown on Yukos shareholders, led by Mikhail Khodorkovsky and Platon Lebedev — the latter has been imprisoned on fraud and embezzlement charges since July. Sources close to Yukos have told The Russia Journal that Khodorkovsky has told his board of directors that in two meetings with President Vladimir Putin, he got an O.K. to proceed with a cash-out and share-swap deal with ChevronTexaco or another U.S. oil company. That is Khodorkovsky’s interpretation and it referred to meetings before Lebedev’s arrest. The Kremlin then made its view clear when Lebedev was arrested. Lebedev is now telling associates that he expects to be in prison for another year or more, indirectly confirming that Putin has made up his mind, or changed it. His chief of staff, Alexander Voloshin, usually an open advocate for the oligarchs, has been caught wrong-footed, promising to deliver Lebedev, but unable to do so or to anticipate what will happen next.

In the heat of this fight, independent Russian economists have been urging the government to remove the distortion in the domestic economy — between the rich asses and the poor ones — by applying capital gains, foreign remittance and super-profit taxes to the oligarchs and then channeling the funds back into the economy as capital investment for a balanced industrial approach.

Although the election campaign has already begun for the national parliamentary poll on Dec. 7 and presidential ballot next March, not a single political party has issued a clear campaign position on this fundamental economic policy choice. Not even the Communist Party, which has assigned two slots on its ballot to former Yukos executives, who still represent their company’s interests.

Meanwhile, ahead of Kasyanov’s talks in Beijing, Yukos has leaked a warning that, unless Kasyanov stops delaying Russian government approval for the pipeline to deliver crude to Daqing, new oil pipeline deliveries to China could not begin before 2006, a year later than scheduled,

An industry source in Moscow noted that the Yukos leak “must be interpreted as encouragement for the bureaucrats to get a move on. Any delay, should It be confirmed, is doubly frustrating, because the government had already decided in May to build a pipeline to China first and leverage this to the Far Eastern port of Nakhodka at a later stage. A delay would also force wholesale revisions to the country’s (and the companies’) crude-output forecasts, which are primarily dependent on constrained market access.”

According to Transneft, the state pipeline agency, the delay reflects indecision on the part of the Russian government on whether to give priority to a rival proposal from the Japanese Government to build a pipeline to the port of Nakhodka and, from there, ship the crude by tanker.

Sergei Grigoriev, vice president of Transneft, told The Russia Journal that “Transneft, like everybody else, simply waits for the government to pronounce its decision on the route. We do not lobby for anything. We have made our proposals concerning the route. After the government decided to merge the two projects — that of a pipeline to Nakhodka and the pipeline to China — we provided a modified proposal. Until the government makes its final decision, nobody can say what route will be chosen.”

In April, the government announced it would authorize construction of the pipeline between Angarsk, in southeastern Siberia, and Daqing, with capacity for 400,000 bd. Then it announced the intention to study a second 970,000 bd-pipeline to Nakhodka. Then, after lobbying from Tokyo, government officials opted to build the Nakhodka leg first and add the China pipeline later.

The Nakhodka option not only pits the Japanese lobby against the Chinese; it forces the government in Moscow to address the fundamental question of how and when it can expect to see the oilfields of eastern Siberia come onstream. And that in turn pushes Kasyanov and his ministerial colleagues towards a fork in the economic-policy road they feel unable to pick right now. Of course, as La Fontaine warns, they may not survive in time to get there.

by John Helmer - Thursday, September 25th, 2003
No Comments »

You can always tell when an American politician is well and truly washed up, a has-been.

He comes to Russia to meet the tsar so that he can go back to Washington and get the Marine salute at the White House before he divulges the very latest on what the big, bad Russian had to say. Since wash-ups and has-beens are mean with folding-money, their expenses have to be paid for by somebody. Sometimes it’s companies that make airplanes, sometimes soda pop. Ex-Senator Gary Hart used to come when he was still in his prime; ex-President Richard Nixon when he was in his dodders. Now it’s the turn of ex-President George Bush Sr. and ex-Secretary of State Henry Kissinger. So long as Boris Yeltsin was in the Kremlin, he could manage to disguise how washed up his guests were, by comparison with himself. President Vladimir Putin is a different kettle offish. (more…)

by John Helmer - Thursday, September 11th, 2003
No Comments »

When Philip Marlowe, the famous fictional American private eye, read the gossip columns of big-city newspapers, he explained that “I don’t read them often, only when I run out of things I dislike.” If Marlowe were able to read the Moscow papers and savor their meretriciousness, he’d never make it off the front page.

Take last week’s big news story, for example: That there is an opposition movement afoot inside Moscow that is proposing to redistribute economic power in Russia and change the elites that pull the levers. At the start of campaigning for national parliamentary elections in three months’ time, to be followed by the presidential election next March, a little cheap socialism shouldn’t surprise anyone. What really would be a scoop is if there is no opposition in Russia seeking votes on such a platform. (more…)

by John Helmer - Tuesday, September 9th, 2003
No Comments »

When Russians gather to drink, they often offer each other a traditional rhyming toast that can be roughly translated as: “May we have more pies and doughnuts, fewer black eyes and bruises!” It’s a formula that Russia’s most powerful businessmen have been quietly offering the advertising-starved managements of some of the world’s leading newspapers in order to play down, if not deter altogether, investigative reporting of Russia’s corporate malpractice.

The formula usually begins with a black eye or a bruise in the form of a defamation writ served up in London, Paris, New York or Frankfurt am Main by a well-known local law firm. The pattern began with a suit by the discredited media oligarch, Vladimir Gusinsky, against the Wall Street Journal. Gusinsky is currently under arrest and on bail in Athens awaiting a hearing on an extradition request from Moscow. That media support for his plight has been muted indicates how little attention he has been paying to the media since he was forced into exile.

In the Gusinsky case, it appears that the pressure to raise security standards at the Athens Airport has produced a serious embarrassment. The Gusinsky warrant, which apparently flashed on the screen as he passed through immigration last week, was obsolete, at least in Western Europe and the United States. But, to the literal-minded policeman on duty, it was nonetheless a warrant for arrest.

That this tale won’t be reported in the non-Greek, non-Russian media testifies to what is left of Gusinsky’s sway.

Gusinsky’s ploy against the Wall Street Journal was followed by Boris Berezovsky’s against Forbes. Mikhail Khodorkovsky, the principal shareholder in Yukos, Russia’s leading oil company, then sued the Times of London. Oleg Deripaska, an oligarch who is waging hotly contested takeover battles in several sectors at once, including paper and pulp and insurance, is currently suing Le Monde in Paris and the Frankfurter Allgemeine Zeitung in Frankfurt am Main. Mikhail Fridman, a banking and oil oligarch, some of whose companies are currently being sold to British Petroleum, is suing Les Echos, France’s leading financial daily, and Le Parisien.

None of these cases has gone to a final judgement and almost none to trial. That’s because, once the lawsuit is launched, the pies and doughnuts are put on the table.

A European lawyer involved in one of the current cases explains there are a variety of inducements, aimed primarily at the revenue management of the newspaper, especially its advertising executives and, sometimes, also at the law firms that are engaged. In one case, the source said, it was discreetly suggested to his law firm that a lucrative piece of legal due diligence might be placed in the firm’s way if it either pulled out of the newspaper’s defense or recommended an out-of-court settlement to the client. In other cases, the investigative reporters whose stories incurred Russian wrath concede the concern that their editors may be pressured by management to abandon the defense of what they reported, notwithstanding the management’s belief in its truthfulness.

Editors profess that their reputation for independence is as valued by their advertisers as by their readers and is supported by a strict separation of editorial staff from advertising. But they aren’t present when their admen make their deals. And they are in the dark about the private relationships of their reporters in Russia. They can hardly ban unmarried correspondents from sleeping with PR agents of the firms they write about. Nor do they always know what benefits may flow from their reporters’ dispatches to their spouses’ businesses. Such ignorance or naivete in the United States or Europe is viewed as an asset by Moscow’s PR professionals.

In most of the international media cases that have been started to date, relatively mild, even generous, out-of-court settlement terms have been proffered on the basis of an understanding that, in the future, the Russian oligarch and his companies in the loan, bond and stock markets can be counted on to be generous with advertising and promotional contracts so long as the newspaper’s reporting avoids the type of investigation that leads to reputational problems for them. While the media budgets of the major Russian companies are estimated in the double-digit millions of dollars per annum at the moment, the calculation in Moscow is that, if the result is a raising of credit ratings and a lowering of charges to hedge against Russian risk, then the money is a good investment and litigating against media good business. When settlements are protected by confidentiality agreements of the type Khodorkovsky struck with the London Times, nothing but positive coverage is visible. You can’t see the chilling effect on what isn’t published. This has enabled Khodorkovsky to deflect much of the force of the current prosecutorial attack on his imprisoned partner, Platon Lebedev, and his Menatep holding by having the Western media endlessly sing the tune that what is happening is a political conspiracy against the blameless, not a criminal case against the culpable.

The spread of oligarch lawsuits across Europe and the distribution of their largesse have produced a serious problem of divided loyalty for English-language and other international editors. On the one hand, the charges against the Russian oligarchs are serious, and, if they succumb to them, the media should welcome the chance to be free to report the impact on Russia’s economic welfare as they see fit. On the other hand, if the oligarchs survive, there is the risk that they will take their revenge on those who bit the hands that fed them.

One way out was suggested by recent coverage from The Moscow Times, a newspaper controlled by mining and banking oligarch Vladimir Potanin. After promoting Potanin’s latest ventures in its news columns, the Times ran a commentary by Lilia Shevtsova, a Moscow political scientist who claims that the oligarchs really don’t exist, that their power is a figment of a policeman’s imagination that and the downfall of Khodorkovsky is threatened simply because his was “the first Russian company that started to look for legitimacy, not through maintaining cozy relations with the [government] apparatus, but by making the switch to transparency and legality.” If this Washington-funded commentator is to be believed, nothing more or less than “a cornered and exasperated” President Vladimir Putin is to blame for getting in the way of such benign pro-Western standards.

Inside Russia, domestic journalists have fewer illusions about the reality of the oligarchs. That is because they have been on the receiving end of attacks that are less discreet and more ruthless, mainly because the local courts can be easily bought by the plaintiffs and the evidence just as easily corrupted. An experienced Russian trial attorney explains that, when he deals with judges, he makes them an offer he believes they won’t refuse. If bribes are to be paid, he counsels, the judge should decide which side to be on. “Take from us, or not at all,” the attorney claims he says. When undercapitalized and uninsured Russian newspapers find themselves up against the deep pockets of the oligarchs, they reckon they have no defense, Deripaska, for example, has threatened legal action against several Russian publications, including Expert, a business magazine, Novaya Gazeta, an investigative journal, and The Russia Journal.

Recently, Sberbank, the state-owned savings and investment bank, went to a Moscow court claiming that one of its board directors had defamed the bank by statements that were published in several local newspapers. The court found in favor of the bank. The bank declared that it “will not tolerate unjustified criticism, and in the future will firmly and consistently defend its interests by all means, including legal actions.” Not for Russia is the doctrine, enshrined in most legal codes abroad, that public officials cannot resort to the defamation law when their public performance is the subject of public criticism.

At his annual open press conference, Putin defended his record of handling the oligarchs by saying that “probably everyone involved in business always looks for ways to earn more money, and to do this as effectively and cheaply as possible. Society’s task, our common task — because both the state and the media should keep a very close eye on this — is to make sure this situation does not arise in the country.”

For the Russian oligarchs, the cheapest way of neutralizing the local and international media is not to buy them — that costly exercise was abandoned in the financial collapse of 1998 — but to frighten them and, then, to make them an offer they are only too relieved to accept. For Western and Russian reporters and commentators on the short leash, it is fanciful to claim that no one is pulling at the other end.

by John Helmer - Monday, September 1st, 2003
No Comments »

MOSCOW – There are four men, possibly five, who as former officials of the International Monetary Fund (IMF), know the sordid truth of the IMF’s intervention in the Russian economy, leading up to the decisions the Russian government took on August 17,1998, to cut the rouble loose, default on government debt, and cover the Russian oligarchs while they spirited several billion dollars offshore. (more…)

by John Helmer - Tuesday, August 26th, 2003
No Comments »

MOSCOW – A notable French medical researcher recently conducted an experiment with the drug Viagra on twelve men, who were helicoptered to one of France’s highest peaks. No women were present.

As is very well known, Viagra is taken by men who are sexually aroused, but lack an erection for sufficient time to enjoy the experience. By itself, Viagra (the brand name for the chemical compound known as sildenafil) isn’t a psychotropic drug, which spurs the brain to sexual arousal, commanding the lower organs to follow suit. Instead, it is a vasodilator, which stimulates the heart and the circulatory system, so that blood flow is increased around the body. By putting 12 men at an altitude of 4,362 metres, exercising them hard on bicycles and other machines, but keeping them away from women, and hiding the identity of the pills they were taking, the French doctors were trying to determine whether Viagra may open the gate to stopping pulmonary oedemas, and other serious circulatory disorders. The results aren’t in yet. (more…)

by John Helmer - Wednesday, August 20th, 2003
No Comments »