Wishful thinking by the economist...Swaggering on
But Russia will find the going harder
A few minutes before midnight on December 31st 2008, President Dmitry Medvedev will stroll out of the Kremlin and stand before cameras in Red Square, steam coming from his mouth. In his first new-year address to the nation he will speak about Russia’s resurgence and its demand for respect; he may talk about his difficult decision to send troops to Georgia; he is likely to mention the turbulent economic climate and Russia’s ability to weather the storm. Then the clock on the Kremlin tower will strike 12 and millions of Russians will click glasses to the tune of the old Soviet anthem, restored by Vladimir Putin eight years ago.
What will happen next and how much Mr Medvedev’s reassuring words will correspond with reality is harder to predict. But all the signs are that Russia is heading into its first truly difficult years since Mr Putin took power in 2000. Its small victorious war in Georgia was the culmination of Mr Putin’s era, which was marked by high oil prices and the sense of restored pride. In practical terms, however, this escapade did not win Russia anything that it did not have already while pushing its relationship with the West to a new low. Russia’s hurried recognition of South Ossetia and Abkhazia, which it controlled anyway, has created the prospect of a prolonged stand-off with the West.
When Mr Putin announced his choice of Mr Medvedev as his successor some forxeign pundits, bankers and home-bred liberals rejoiced: at last, after the belligerent Mr Putin, comes a mild-speaking young lawyer with no background in the secret services and few memories of the cold war. Only unrepentant pessimists, such as Andrei Illarionov, who had worked with Mr Medvedev at one stage, gloomily predicted that Mr Medvedev would try to overcompensate for his civilian background. So far the pessimists have the upper hand: Mr Medvedev has tried to prove himself not by diverging from Mr Putin, but by imitating Mr Putin’s bellicose style and sounding even tougher than his patron.
The West may not have much leverage over Russia, but the rift in the relationship is coming at a time when Russia can least afford it. One reason Mr Putin was able to ignore Western opinion on human rights or the worsening business climate was that Russia was swimming in money. The Kremlin never paid the price for destroying the Yukos oil company or revising the terms of producxtion-sharing agreements with foreign firms. Rising oil prices and a steady flow of cheap credits from foreign banks made Mr Putin feel all but invincible and masked structural problems in the economy.
In 2009 Russia will face a much tougher economic reality. Credits from foreign banks have dried up. Oil prices have fallen sharply. Imports are rising faster than exports, so that Russia’s trade surplus, which had been growing strongly, will start to shrink. To make up for this, the government will spend more money from its oil-fuelled stabilisation fund, but some of this money will go into inefficient state corporations, increasing the state’s share in the economy and complicating efforts to bring down inflation, which is in double digits. Russians will see their real incomes grow more slowly.
No more mister tough guy?
In the past, the Kremlin had to worry only about a marginalised group of Russian liberals. Now it may face discontent from a wider public which cheered Mr Putin’s tough stance with the West while incomes rose. Russia’s economic growth will become a lot more dependent on foreign investments. The optimistic scenario is that Russia’s economic needs will tame its hostility towards the West and that the political system created by Mr Putin and inherited by Mr Medvedev will become more flexible. The war in Georgia makes this scenario less likely than it would have been a year ago. Instead, the self-sustained logic of the Putin regime suggests that Russia will continue to search for enemies both outside the country and within. This may mean more hostile rhetoric and possibly actions in the former Soviet republics which Russia considers its own sphere of influence.
But it would also make Russia’s economic modernisation less likely. Several years of unchecked xenophobia have made Russians much more receptive to authoritarian and nationalistic rule than to liberal ideas. On the other hand, the more oppressive the Kremlin becomes, the more resistance it will face from its own ethnically Muslim republics, particularly in Ingushetia, where people are fed up with corrupt leadership and the constant abuse of human rights. In the short term, Russia’s war in Georgia has served as a reminder to places like Ingushetia and Chechnya that Moscow is ready to steamroll any opposition. But in the longer term, having undermined Georgia’s territorial integrity, Russia has inadvertently put its own at risk as well.
Ukraine Steals European Gas
European gas supplies at risk: http://www.youtube.com/watch?v=vmPJ9aR9ADg
Ukraine has started siphoning off Russian gas bound for European customers, according to Russia's energy giant Gazprom. This follows the cutoff of gas supplies to Ukraine on January 1, after the two countries’ gas companies failed to agree on a price for 2009. Gazprom deputy CEO Aleksandr Medvedev is in Prague to inform the EU about the on-going gas conflict with Ukraine, blaming Ukraine for the reduction in supplies. “It's not Russia, but Ukraine which is blackmailing both Russia and Europe. It seems that Ukraine's authorities don't care about their country, but are simply playing political games. The Ukrainian President and Prime Minister are using the gas crisis for their own political aims,” said Medvedev on Saturday. “We want the EU to have full information on the issue so that it has a realistic understanding of who is to blame for the crisis.” Gazprom's board is also holding an emergency meeting in Moscow where they are discussing Ukraine's siphoning of gas. “Ukraine has cynically announced it's siphoning off gas from the export pipe. Dispatchers in the Balkans say the region is already suffering from Ukarine's actions. Gazprom believes the Balkan states need to use the Energy Charter signed by Ukraine to protect themselves. This charter says no contract disputes should affect supplies provided by a transit country,” stated Gazprom’s Deputy CEO Aleksandr Medvedev. Earlier on Friday the company’s spokesman Sergey Kuriyanov said that Ukraine is avoiding negotiations with Gazprom. He noted that Ukraine’s Naftogaz has promised to pay $US 1.5 billion by January 11. “But there will still be an outstanding debt of $US 614 million. Therefore, we plan to increase the transit level of gas through Belarus,” Kupriyanov said.
Ukraine, however, has denied it is siphoning off gas from transit pipes. Also, according to Russia’s Deputy Foreign Minister Aleksandr Grushko, Russia has asked the EU parliament to hold a special meeting to discuss the issue of Russian gas transits via Ukraine. “Gazprom representatives are ready to head to Brussels, and all European countries, to fully inform them about the dispute between Gazprom and Ukraine's Naftogaz,” he said. Earlier Gazprom spokesman Sergey Kupriyanov said that independent auditors are being blocked from checking whether gas supplies to Europe are being hindered. "We don't have an effective gas delivery contract with Naftogaz now. Naftogaz is currently obstructing the operators of RosUkrEnergo and is not letting them extract the gas from underground facilities which they have," said Kupriyanov. There is still no contract signed between the two countries and debts must be paid in full before another can be signed. The Russian energy company has also calculated over $US 600 million in penalties Ukraine owes. Gazprom’s overall supply reduction amounted to 90 million cubic metres a day, which is roughly Ukraine’s consumption.
Prices don’t meet
Both Ukrainian President Viktor Yushchenko and Prime Minister Yulia Timoshenko have appealed to Russia not to cut gas supplies to the country and to continue talks. They've also named the price their country is prepared to pay for the gas: $US 201 per 1,000 cubic metres. Gazprom, though, wanted a higher price - $US 250 per 1,000 cubic metres – which is almost half the market price. Ukraine turned down this offer. A statement by Gazprom followed that it would now sell gas to Ukraine at the market price of $US 418. “Ukraine didn't accept the preferable gas price we offered - which was $US 250 per 1,000 cubic metres," said Gazprom CEO Aleksey Miller. "So starting from January 2009, Gazprom will deliver gas to Ukraine at a market European price." As Europe depends on Russia for about a quarter of its gas supplies, and the fact that 80% of their supplies pass through Ukrainian pipelines, it is watching the ongoing conflict closely. After Russia had announced a new gas price for Ukraine, Viktor Yushchenko said it would be "logical" that transit costs should go up too. The Ukrainian leader said that talks with Russia are to be resumed shortly with the final agreement to be reached by the time of the Orthodox Christmas, January 7. A Ukrainian delegation has set off on a tour of Europe, which aims at informing the European Union about the gas situation and to provide guarantees that the gas will be transported across Ukraine as normal. Also, Ukraine's president Yushchenko has sent letters to the leaders of eight countries and to the European Commission to explain his reasons of the gas dispute. Earlier Ukraine had threatened to confiscate Russian gas passing through the country, refusing to guarantee supplies to Europe as Russia promises to stop gas supplies to Ukraine due to debts. Gazprom called Ukraine’s reaction ‘blackmail’.
As Gazprom has vowed to maintain supplies to Europe in full, its gas will be entering Ukraine for the foreseeable future, at least until the Nord or South Stream is opened. One major pipeline – bringing gas to Ukraine – passes through the town of Kursk, while a larger one – taking gas to Europe – operates in Voronezh (see picture). Meanwhile, German gas company E.ON Ruhrgas has taken precautions in case supplies of Russian gas are hampered. Its press secretary Helmut Roloff said that the company has agreed on additional gas supplies from Norway in case of emergency. Nevertheless, on Friday, they received all the gas they had ordered.
Russia looks to re-route EU gas
Ukraine steals European gas: http://www.youtube.com/watch?v=PBPRuVw6_zE
Ukraine steals European gas: http://www.youtube.com/watch?v=PBPRuVw6_zE
Russian gas giant Gazprom says it can no longer depend on Ukraine as a transit route to the EU and is looking to develop alternatives. In a BBC interview, the deputy chairman of Gazprom, Alexander Medvedev, said he hoped EU countries would back the move. Gazprom cut off Ukraine's gas supply on Thursday in a row over payment. The firm has since accused Ukraine of stealing gas, however Ukraine's state energy firm said Russia was not sending enough gas to ensure the EU supplies. Ukraine's state gas company, Naftogaz, denied illegally siphoning Russian gas, saying it was ensuring the export supply. Ukraine has insisted it will not interfere with gas transported from Russia to other states via its pipelines, as it has enough gas in its reserves to look after its own needs for some time. Hungary and Poland said pressure on their pipelines had dropped. Naftogaz said earlier it was diverting some gas to maintain pressure in the pipeline network.
In his first foreign interview since the gas was cut off to Ukraine, Gazprom's Alexander Medvedev dismissed the suggestion his company was deliberately picking a fight with Kiev. Instead he said Gazprom was ready to end the dispute immediately - but there was no-one to negotiate with. "We are ready to enter negotiations day and night, but they probably have other tasks than to solve this problem because they are not in Moscow," he said. Mr Medvedev said Gazprom has gone out of its way to ensure supplies of gas to Europe are maintained. He said the problem was not with Russia, but Ukraine, adding "that's why we believe it's necessary to develop, as soon as possible, alternative transit routes". The alternatives he talks of are two new pipelines Russia is planning to build that will by-pass Ukraine on their way to Western Europe. The Nord Stream gas pipeline would run under the Baltic Sea from Russia to Germany, and the South Stream link would pass under the Black Sea. The BBC's Rupert Wingfield-Hayes in Moscow says this latest dispute is expected to give those Russian plans a significant boost. The Czech Republic, which holds the rotating EU presidency, said it would call a crisis meeting of envoys in Brussels on Monday to discuss the row. Pipes across Ukraine carry about a fifth of the EU's gas needs. A similar row between Gazprom and Ukraine at the beginning of 2006 led to gas shortages in several EU countries.