Security Watch: April 24, 2003

RUSSIAN POLITICAL SCIENTISTS ANALYZE POSTWAR STANCE. Russian political scientists and politicians gathered in Moscow on 16 April to discuss the lessons of the war in Iraq. The newspaper "Vremya Novostei" of 17 April published the following excerpts from their speeches. Fedor Burlatskii, president of the Eurasian State Cooperation Foundation: "The war in Iraq is being waged for security, not oil. In this sense, friendship with Germany and France is good for Russia; however, our main partner in the security sphere is still the U.S. We need to get rid of the psychology of a superpower; Russia is America's junior partner in overhauling the system of world security." Anatolii Adamishin, former deputy foreign minister: "We are approaching the substantially changed world with Cold-War yardsticks. The world is divided according to the principle of strength. The Americans cannot be banned from overhauling the world as they see it fit. Russia has overestimated its possibilities in this respect. It is to be hoped that life will judge the Americans. We should stop playing in various coalitions -- this ties our hands. Russia's task now is to prevent the aggravation of relations with the U.S. and start tackling problems relating to the internal situation, say, elections." Yefim Zhigun, Institute of Israeli and Mideast Studies: "Russia needs to overhaul its armed forces, orienting itself to the sophistication of high-precision weapons, reinforcement of special forces, etc. Establishing a lobby in Washington would not be out of place -- the sentiments there are quite different and there is even a Honduras lobby there, while there is no Russian one."

MOSCOW SAYS NOT SO FAST ON LIFTING SANCTIONS AGAINST IRAQ... Foreign Minister Igor Ivanov said on 17 April that Russia does not support a U.S. proposal that the UN Security Council quickly lift its economic sanctions against Iraq, RTR reported. Ivanov said that the issue "cannot be solved automatically" without passing through the Security Council, which he said still must determine whether there are weapons of mass destruction in Iraq or not. He noted that this would likely entail the return of international weapons inspectors to that country. Duma Foreign Relations Committee Chairman Dmitrii Rogozin said that Moscow would probably drop its objections to the lifting of sanctions in exchange for U.S. concessions on the issue of Iraqi debts to Russia. Speaking on ORT on 17 April, Rogozin said the United States should agree to allow Russian companies to participate in the reconstruction of the postwar Iraqi economy.

...AS POLITICIANS CONSIDER U.S.-RUSSIAN RELATIONS AFTER THE FALL OF HUSSEIN. During the same ORT broadcast, Rogozin said that the most important thing for Russia is not relations with Iraq but that the United States accept responsibility, including moral responsibility, for the situation there. For Russia, the most important thing is to build relations with the United States on the foundation of "Russia's own interests" and to strengthen its military and its economy, Rogozin said. "If Russia had a lot more missiles and a population of 500 million, the United States would speak to us in a different language," he said. Former Deputy Prime Minister and Finance Minister Aleksandr Shokhin said that relations with the United States are important to Russia primarily because of the U.S. role in determining world oil prices, upon which the Russian economy is heavily dependent. In comparison with Russia's dependence on oil-export revenues, the issues of Iraqi debts or the role of Russian companies in postwar Iraqi reconstruction are insignificant, Shokhin said. Dmitrii Simes, president of the conservative, Washington-based Nixon Center, said that no U.S. politician would say publicly that Russia should be punished for its position on Iraq.

RUSSIA CALLS FOR DIPLOMACY REGARDING SYRIA. Speaking to journalists in Athens on 16 April, Foreign Minister Igor Ivanov -- although he did not specifically mention the United States -- called on Washington "not to increase tensions" around Syria and to resolve any differences on the basis of "bilateral contacts," RIA-Novosti reported. Ivanov said that "if anyone has questions about whether Syria possesses weapons of mass destruction, there are diplomatic and other channels by which they can be answered." Inflaming the situation around Syria is very dangerous in a region that is already facing numerous critical problems, Ivanov added. Russia has an active military-cooperation agreement with Syria and has a small, albeit nonfunctioning, naval base there.

FOREIGN SPIES WATCHING ARMY REFORMS. Lieutenant General Aleksandr Bezverkhyi, head of the Federal Security Service's (FSB) military counterintelligence directorate, has said that foreign intelligence services are extremely interested in the process of Russia's military reform, Interfax reported on 16 April. Bezverkhyi said that not only are NATO countries interested in this topic, but agencies "from the most exotic countries" are as well. As was the case during the Soviet period, the Russian Army has not operated its own counterintelligence service, and it is under the protection of the FSB, which also monitors its political loyalty.

RUSSIAN PRIVATE OIL PIPELINE TO U.S. Dropping its previous opposition, the Russian government gave permission for plans to build a privately owned oil pipeline to Murmansk that would carry oil bound for the United States, "The New York Times" reported on 18 April. Prime Minister Mikhail Kasyanov approved a feasibility study for the $4.5 billion project, which also involves building a new loading terminal at Murmansk and a port on the Barents Sea. According to "The New York Times," Energy Minister Igor Yusufov said that the government would not oppose full private ownership of the pipeline, an aspect that officials had balked at just a few months ago. "We simply showed that our growth estimates for the oil industry are well founded," said Leonid Fedun, vice president of LUKoil, one of the companies backing the project. "In 2007, the pipeline will be built, and Russia will play a geopolitical role in the oil market just like Saudi Arabia." Five of the largest Russian oil companies -- LUKoil, Yukos, Tyumen Oil, Surgut, and Sibneft -- formed a consortium to build the Murmansk project.

RUSSIAN OIL FIRMS DISCUSS MAJOR MERGER. OAO Yukos and OAO Sibneft, two rapidly growing Siberian oil companies, are reported to be holding talks to merge into one major oil company according to "The Wall Street Journal Europe" of 22 April. This would allow them to pump 2.2 million barrels of oil a day. The business would control reserves of 20.7 billion barrels of petroleum and natural gas and have a market capitalization of about $35 billion. According to the report, "People familiar with the discussions say Yukos's current shareholders would own a majority stake in the combined entity, with Sibneft shareholders retaining a smaller stake in the range of 25 percent. Both producers are majority owned by a small circle of Russian businessmen, who bought the assets at rock-bottom prices from the state in the mid-1990s. Foreign portfolio investors own minority stakes in both firms."

RUSSIA TO DEFEND ITS OIL INTERESTS IN IRAQ, ANALYSTS SAY. Russian oil companies with long ties to Iraq will try to hold on to the oil interests they acquired under the regime of Saddam Hussein, oil industry analysts told Reuters on 17 April. "The biggest thing Russia is looking for is whether LUKoil contracts are going to be honored," Jonathan Stern, an energy analyst at the London-based Royal Institute for International Affairs, told Reuters. Iraq revoked the LUKoil contract in December saying the Russian firm failed to start development work but Baghdad did not award the work to another company and LUKoil has challenged the legality of the cancellation. LUKoil had also angered Baghdad after reports its managers had sought assurances from Washington that the contracts would be honored if Hussein was ousted. "LUKoil's position is not helped by the fact that Saddam's government tore up the contract in December," Julian Lee, an analyst at the Global Center for Energy Studies in London, told Reuters. Lee commented that "it was not a foregone conclusion that a new Iraqi government would solely favor U.S. and British companies because of the part the United States and Britain played in the overthrow of Saddam Hussein. Iraqi oil policy is unlikely to slavishly follow a United States line. Iraq has a history of oil nationalism," said Lee. Leonid Fedun, a vice president of LUKoil, told "The New York Times" on 18 April that his company intended to sue any rival company that tried to lay claim to West Qurna-2, a huge Iraqi field that LUKoil signed a contract in 1997 to operate. "In the opinion of our American lawyers, our legal position is immaculate." Maintaining UN controls would ensure a degree of influence in shaping the post-Hussein era for France and Russia, which were among the main beneficiaries of trade with Hussein and seek to defend their commercial interests. Under UN sanctions, Iraq can export its crude oil only under the supervision of the UN oil-for-food program. Revenues must be paid into a UN account and the funds are then used to buy civilian goods under the scrutiny of a UN sanctions committee. The U.S. says Iraq needs to export oil freely to raise desperately needed funds to buy humanitarian supplies. But many policymakers think that Russia and France fear that an early lifting of sanctions would mean control of Iraq's oil fields would effectively pass into the hands of the coalition or an Iraqi administration influenced by Washington.

RUSSIA AND CASPIAN REGION TO HAVE CRITICAL ROLE IN FUTURE SUPPLY OF OIL TO THE U.K. Russia and the Caspian region will have a critical role to play in supplying the future energy needs of the U.K., British Energy Minister Brian Wilson said. Speaking at the Commonwealth of Independent States Oil and Gas summit in London, Wilson stressed the importance of international relationships in helping the U.K. achieve its environmental and energy security goals. As reported by Alexander's Gas and Oil Connections on 17 April, Wilson said: "The world will become increasingly reliant on international energy trade. We are committed to ensuring a range of secure energy sources. British investment and supply technology are helping us to achieve that. "Exploring and developing new reserves in the Caspian region, and investing in pipeline construction will deliver a greater proportion of oil and gas to Western markets. New export routes, such as oil pipelines from Azerbaijan and a gas export line to Turkey, are under development." Wilson said: "Russia and the Caspian Region will be crucial to meeting global energy needs, and represent a significant business opportunity for equipment and service suppliers. The Commonwealth of Independent States has a vast resource of untapped oil and gas reserves that could potentially help supply the energy needs of the U.K. for decades." He added: "British expertise will not only help bring that source to the U.K., but help foster a closer international relationship with and within the CIS."

RUHRGAS CEO BELIEVES GAZPROM LACKS TRANSPARENCY. A member of the board of Gazprom, Burckhard Bergmann, who is also the chief executive officer of Germany's Ruhrgas, criticized the new management of Gazprom for lacking transparency. Bergmann was quoted in the "Russia Journal" on 31 March as stating: "Miller's team has achieved significant success in recovering [lost] assets, but a lot has still to be done. It is necessary to increase Gazprom's transparency and effectiveness." Bergmann also noted that Gazprom still faced considerable financial problems. "The fact that Gazprom is still unable to take investment decisions according to strict economic criteria causes concern," he said. "When making new investments, Gazprom does not always earn enough money to pay the interest on financing the investment." He said it was not clear what transportation tariffs or investment to widen gas pipelines there should be and "what free capacities Gazprom owns now." "The lack of transparency of Gazprom's transportation costs makes it unclear how much gas transportation in Russia really costs."

KUCHMA, SCHROEDER DISCUSS PIPELINE IN ATHENS. Ukrainian President Kuchma attended the European Union conference in Athens on 17 April where he tried to establish himself once again as an accepted player in Europe, Ukrainian television reported on 17 April. During the conference, Kuchma met with German Chancellor Gerhard Schroeder to discuss the international gas consortium which would have control over the natural gas pipeline going from Russia through Ukraine to Western Europe. Thus far the announced partners in the consortium are Russia's Gazprom and the Ukraine's Naftogas Ukrainy. The Germany gas company Ruhrgas had in the past announced its interest in possibly joining the consortium.

MAJOR DRUG TRIAL OPENS NEAR MOSCOW. A Moscow Oblast court on 15 April began hearing the case of a group of alleged drug dealers that is considered to be the most important drug-related trial in recent Russian history and which involves hundreds of millions of dollars, izvestia.ru and ORT reported on 14 April and 16 April, respectively. The ring was exposed with the assistance of the U.S. Customs Service, which uncovered a large shipment of cocaine in 2000 during a routine check of a cargo shipment traveling from Colombia to Russia via Miami. After U.S. officials reported the find to the Russian Interior Ministry, investigators determined that the shipment was headed to a man named Vadim Petrov. Investigators alleged that Petrov and four Moscow-area accomplices were using cocaine to produce a synthetic drug called madrex, which they then exported to Europe and Africa. According to izvestia.ru, "in the 1990s, Vadim Petrov's gang literally flooded Europe and Africa with synthetic drugs and Colombian cocaine." The gang allegedly owns real estate and other property abroad worth hundreds of millions of dollars. Responding to an Interior Ministry warrant, Interpol arrested Petrov at a rented villa in Monaco in January 2001, and he was extradited to Russia in December 2001. According to investigators, Petrov is also wanted in the Netherlands for his alleged involvement in the purchase of $500 million in real estate.

DUMA DEPUTY YUSHENKOV MURDERED. Sergei Yushenkov, the 52-year-old co-chairman of the Liberal Russia party and a member of the Russian State Duma, was shot and killed by the entrance to his home in northwestern Moscow as he left his auto in the early evening of 17 April. The killer fired three rounds from a Makarov pistol with a silencer attached. The pistol was found at the scene of the crime. Yushenkov died before reaching hospital. The AP reported on 18 April that Yushenkov's colleagues in the State Duma said the killing was political. Moscow's chief prosecutor, Mikhail Avdyukov, said it was most likely connected to his "activities as a lawmaker." Asked in London about the murder and the fact that President Vladimir Putin was informed of it immediately, exiled Russian oligarch Boris Berezovsky told Russian NTV television on 17 April: "I have just one question in this connection: whether he was informed about the murder happening or about the murder being carried out. I think the latter would be more correct." Berezovsky was a one-time supporter of Liberal Russia until the party broke ties with him over his support for the Communist Party. Yushenkov was the ninth member of the State Duma to be killed. None of the killers have been found by the police. Yushenkov, a member of the Duma's Security Committee, had received death threats in the past for his opposition to the war in Chechnya. According to "The Moscow Times" of 18 April, "Investigators also were trying to determine whether the killing could have been connected to the killing of another Liberal Russia co-chairman last year. Vladimir Golovlev, also an independent Duma deputy, was gunned down in Moscow in August, and his killing remains unsolved." In 1995, according to "The Moscow Times" of 22 April, "then-Defense Minister Pavel Grachev, infuriated by Yushenkov's and [Sergei] Kovalev's criticism of the Russian Army's actions in Chechnya, called Yushenkov a dirtbag on live television [He called Kovalev a traitor.] Yushenkov replied that being insulted by a commander like 'Pasha Mercedes' was like receiving a badge of honor." Journalist Dmitrii Kholodov, whose articles were the source of the nickname "Pasha Mercedes," died when a bomb was delivered to his office. A group of paratroop officers close to Grachev was arrested in the Kholodov case. The paratroopers were found innocent because the prosecution could not produce sufficient evidence to convict them.