Putin's Delicate Balancing Game

www.themoscowtimes.com Thursday, Mar. 13, 2003. Page 1 By Catherine Belton Staff Writer For two weeks after the Sept. 11 attacks on the United States, President Vladimir Putin went into hiding amid a tumult of questions over whether Russia would lend vital support for a U.S. war in Afghanistan. He emerged from his silence to give the green light to a U.S. move into former Soviet military bases in Central Asia, heralding a historic shift in Russian foreign policy toward cooperation with the U.S..

But now, as the divide deepens in the United Nations Security Council over whether to approve a resolution giving Saddam Hussein a deadline to disarm or face war, that carefully crafted relationship is already on the line.

Putin's Foreign Minister Igor Ivanov has swatted aside U.S. warnings that Russia risked ruining improving relations and endangering American moves to help Russia enter the World Trade Organization. He said flatly on Monday that Russia would vote no.

But Putin has kept quiet. In a sign he has not made a final decision yet on how to play the standoff, he has made no public statements on Russia's position since his Kremlin meeting two weeks ago with antiwar ally German Chancellor Gerhard SchrÚder, when true to form, he played to both sides.

A vote on a new UN Security Council resolution, which the United States insists will come this week, could be one of Putin's biggest tests. The question on everyone's lips is how far he is willing to stick his neck out in opposing a U.S. war in Iraq. He has to weigh a delicate balance in a tough global game of brinkmanship between defending Russia's interests in trying to avoid war and its interests in strengthening Russia's new relationship with the United States, a relationship that already is beginning to pay economic dividends as investors begin to pile back into Russian markets. Russia's stock market has soared 110 percent since late September 2001.

On the one hand, there's the tempting chance to try to dent America's growing might through a closer alliance with France and Germany, Russia's allies in opposing war. There's also the opportunity to try to hold off a war that could send oil prices plummeting, hitting budget revenues just as Putin prepares for presidential elections in 2004, and a war that could spark instability in a region much closer to Russia than to the United States. "Putin right now is doing everything sensibly possible to hold off a war in Iraq," said Sergei Markov, a Kremlin-connected political analyst.

But, on the other hand, if that big risk poker game move backfires, Russia, just four years out of economic crisis, could be ostracized by the United States, which alone, analysts say, has the power to make or break Russia's bid to integrate into the global economy.

For now, going on Ivanov's recent tough line, Russia looks to be tempted by the chance to influence global decision-making after more than a decade of being sidelined as a collapsing former superpower. Now with France and Germany joining in opposition against the United States and state coffers bulging following three years of high oil prices and in no need of handouts from the U.S., Russia is feeling brave enough to make a stand. "Who thought a month ago that Russia could escape the status of a junior partner of the U.S. Now, together with France and Germany, it is step by step pressing the U.S. into making concessions. This is a very interesting development that has not happened before," said Alexander Rahr, a specialist on Russian-German relations and the author of a book on Putin. "It's a moment of history, where Putin is saying the beginning of a multipolar world can be established."

In the face of Russian and French opposition to their resolution, Britain has proposed softening it, and the United States has indicated it might go along.

"It's not about Iraq, it's about limiting the scope of U.S. action, so that America alone cannot unilaterally decide what to do," said Rahr, an analyst at the German Council on Foreign Relations. "Putin thinks the alliance is strong enough to withstand U.S. pressure. But at the same time, he is keeping the backdoor open to jump out."

"Russia is trying to put itself in a different position in relation to the U.S. than it was under Yeltsin," said Alexei Mukhin, director of the Center for Political Information. "Now Russia is trying to regain the status of a country whose opinion has to be taken into account."

Russia's political establishment, particularly the Foreign Ministry, has long been searching for ways to combat the United States' growing strength as the only superpower. In a commentary for the Financial Times soon after the initial decision in February to side with France and Germany, Foreign Minister Igor Ivanov pointed to the new alliance as having a "significance which goes beyond the Iraqi crisis."

Even some business barons are cheering this strategy on. "This is a unique chance for Russia," said Konstantin Remchukov, chairman of the advisory board of Base Element, a metals empire owned by Oleg Deripaska. "For the first time since Putin came to power there is a possibility to split the West."

But it's not just geopolitical chess games that may lie behind the move. Analysts say France and Russia are on the offensive against the United States to press the Bush administration into making concrete concessions on their economic interests in Iraq. "The U.S. has not done enough to guarantee a new regime will pay back Iraq's debts to Russia and to guarantee Russia's stakes in Iraqi oil fields," said Vyacheslav Nikonov, the head of the Fond Politika think tank. "No deal has been struck."

Iraq owes Russia over $8 billion in debt. LUKoil had the rights, potentially worth $20 billion, to develop the vast West Qurna field in Iraq, but had them snatched away in December when Hussein's regime accused it of trying to clinch a deal with the U.S. that its

contract would be guaranteed under a new regime. Since then, however, a few medium-sized Russian oil companies have clinched deals to develop smaller fields. Russian firms also have won more than two-thirds of the contracts under the UN oil-for-food program.

For France, it's a $70 billion question. France's BNP Paribas bank has exclusive rights to handle all the funds coming out of Iraq's oil-for-food trade, said a UN diplomat, who wished to remain anonymous. That's $70 billion, and after a regime change it's unlikely France would keep hold of this account. "France has always been against regime change in Iraq because of the massive revenues BNP Paribas makes in handling Iraq's account," the diplomat said.

Those combined interests in Iraq could drive a future Franco-Russian alliance. At the start of his term in power, Putin was set on forming an alliance with the EU at the expense of the U.S. In 1999, just after he became prime minister, he laid out a proposal to move Russia's trade out of dollars into euros.

On Tuesday, EU Commissioner Roman Prodi announced plans to create a free trade area with the EU for countries stretching from Russia and Ukraine to Israel and Morocco in which all citizens could move freely. In the past, Prodi has spoken against eventual membership for Russia in the EU. On Tuesday, however, he said this could not be ruled out.

From a trade standpoint, ties with the EU are much more important for Russia because over two-thirds of trade is done with Europe. When the EU expands, that is set to grow to more than 70 percent of Russia's total trade balance.

But at the same time, building ties with the European Union at the expense of Russia's relationship with the United States could easily backfire.

"Russia has only been in three years of recovery after over 70 years of communism and 10 years of economic chaos. Russia can't afford to take big economic risks like this yet," said Christopher Weafer, chief strategist at Alfa Bank.

"France and Germany are well behind the the economic importance of the United States. Russia can't afford to risk alienating the U.S. over this."

"It will be hard to achieve increased investment flows into the economy without Russia's continued integration into the world economy," he said. "There is one country -- the U.S. -- that's in a position to make that a lot tougher. It's a fact of life today that the Europeans do not occupy the same economic space as the U.S."

Meanwhile, the European Union has been Russia's most troublesome partner so far in both political and trade issues, from last year's spat over travel to and from Kaliningrad to this year's tough new curbs on Russian grain. It also has been Russia's biggest opponent over conditions for joining the WTO.

The closer relationship with Washington, however, already has reaped dividends. The United States has been making a strong case for pushing Russia into the WTO, and its invasion of Afghanistan helped clear up Russia's own security problem with the Taliban right on its own southern borders.

"If Putin acts logically he should stick with the U.S.," Rahr said. "This what the Bush administration counted on. They didn't think there was a real threat."

Another risk is that no matter what SchrÚder or Chirac may promise Putin in return for his continued support, neither of them can guarantee the promises would be implemented. Any moves to improve ties with Russia would have to be approved unanimously by all EU member states.

"France and Germany have nothing good to offer Russia," Markov said. "From a pragmatic point of view the main problem Putin has to deal with is Russia's continued isolation. The United States is the only country that can help Putin on this."

At a round table held Wednesday to discuss Iraq, Yabloko leader Grigory Yavlinsky warned against Russia's alliance with France and Germany. "This new triangle ... is an illusion," he said, The Associated Press reported. "Putting Russia in an isolated position is going to cost much."

Dmitry Rogozin, the head of the State Duma's foreign affairs committee, however, said Russia's rejection so far of a U.S. resolution that would pave the way for war has been a matter of principle, not of alliance-building against the United States.

"We do not consider ourselves enemies of the United States. We just don't understand why the U.S. considers it necessary to wage war in Iraq," Rogozin said.

"UN weapons inspectors can keep Saddam Hussein under control. This is a unique chance to avoid war," he said. "Putin and Bush have a mutual understanding that something needs to be done on how to make sure Hussein disarms, but both have different views on how this should be achieved."

Rogozin said the United States deserved a dvoika -- one of the lowest grades in Russian school -- for its diplomacy in the UN Security Council. "Its attempts to explain the reasons for invading Iraq are laughable," he said.

He lashed out at Washington for its warnings that Russia risks damaging its political and economic interests if it votes against U.S. military action.

In an interview with The Moscow Times last week, a senior U.S. diplomat in Moscow warned that Russia risked jeopardizing U.S. support for its entry into the World Trade Organization and the lifting of Soviet-era trade sanctions under the Jackson-Vanik amendment.

U.S. Ambassador to Moscow Alexander Vershbow expanded on those threats in an interview with Izvestia published Wednesday, saying Russia also risked endangering future cooperation and investment in energy, joint work in security and anti-terrorism programs, and partnership in space, if it used its veto.

"Russia's position on Iraq cannot be connected to conditions for joining the WTO," Rogozin said. "Tying the two issues just discredits the United States. We are not America's pet rabbit that can be punished in such a manner."

Analysts said U.S. threats could only stiffen Russia's resolve. "Ivanov's latest and strongest statement [on Russia voting against the resolution] is a reaction to threats from Washington when it has been trying to convince Russia not to follow France. Instead of doing this, the United States has made matters worse," said Alexander Pikayev of the Carnegie Moscow Center.

"The Kremlin cannot show weakness ahead of elections," he said. "The Iraqi war is not popular. It would be very difficult for Russia to capitulate to such threats ahead of elections."

"This is all fairly dangerous for the development of relations between Russia and the United States," Nikonov said. "Putin has to take into account the mood of his own electorate. There is growing anti-U.S. sentiment in Russia now, and if there are worsening relations with America that could add to Putin's points.

"This won't have a big immediate impact on the Russian economy. The most important factor for the Russian economy is the oil price."

But economists argue that isolation from the United States could cost Russia its bid to diversify the economy out of its raw material base. "It's a question of whether Russia wants to catch Portugal or Venezuela," said Weafer.

With high stakes at play, Putin seems to be playing it tough for now in the hope that he will be able to avoid having to vote either way.

"The strong statements from Moscow recently are aimed at trying to pressure wavering Security Council members into not supporting the resolution," Pikayev said. If the United States does not get nine votes on the 15-member council, Russia does not have to use its veto.

"Russia's aim is not to bring the conflict to the situation where we have to vote yes or no," Rogozin said. "We need to win time. There are other methods of solving this conflict aside from war."

Deputy Foreign Minister Georgy Mamedov said Wednesday during a visit to Tokyo that Russia is hoping to avoid the use of its veto. "It would mean the collapse of diplomatic efforts and leave only military actions," Mamedov said, the Kyodo news agency reported.

As time runs out ahead of a vote, Russia may face playing a game of chicken with France and China, which have also threatened to use their vetoes against war in Iraq. "Russia does not want to be alone in using its veto. All are fearing that each side will deceive the other in this complicated game. All fear that one side will abstain instead," said Ivan Safranchuk of the Center for Defense Information.

For Putin, a tough stance from Russia is a risky play. It is unlikely Bush will step down from his threats to wage war against Iraq following the huge military build-up in the Persian Gulf. If the United Nations does not approve military action because of protests from Russia and other member states, chances are the United States will go ahead with unilateral military action anyway. It is unclear whether Russia's relations with the United States would still be undermined if this was the case. Without Russian approval of U.S. military action, U.S. officials have made it clear Russia risks being locked out of any role in a post-Hussein Iraq, including in developing oil fields.