Russia's Nationalisation Trap

Which are the common assets of a nation and who should be allowed to utilise them? This is a question of heated debate for current Russia, as the vital energy sector is gradually being nationalised. It is privatisation in reverse - for everyone to see - no matter what the Kremlin might claim. The question is: Is it good for Russia?

In terms of economics, monopolisation - in this case nationalisation - may be motivated if the sector in question constitutes a natural monopoly. This may mean one out of two things: Either the social costs of monopoly production are lower than under competitive circumstances, or if the fixed costs of entry into a sector are so high as to be predatory, it allows but one viable and effective producer. Areas associated with natural monopolies are e.g. water services, postal services, telecommunications, and so on. However, as examples in global economy show, natural monopolies are not a sine qua non. Private companies may offer such production and services, as are associated with natural monopolies, more efficiently and at a lower price, than a state monopolist may. This is not always the case, and monopoly may in some instances be preferrable to competition. However, one should not automatically rule out competition only on the basis of existing economies of scale appearing to naturally favour a monopoly situation.

So, in view of current nationalisation of the Russian energy sector, could it be argued that it constitutes a natural monopoly? Most probably not. Instead nationalisation may threaten the industry as a whole.

What an industry such as the energy sector needs is long-term engagement and development. It needs large-scale investments over a long period of time in construction and maintenance. It also needs technical skills and know-how along the entire scale from prospecting to sales. Finally, it needs means of development - the capacity to expand and extract new resources and deliver them to costumers under efficient and competitive circumstances. These are qualities that a state actor does not necessarily posses.

So, does the Russian state have the financial resources and the commitment to maintain and develop the energy sector? For obvious reasons, it is a question still to be determined. However, judging from the current situation and the way the Russian state acts, perspectives are bleak for efficient state-owned energy production in Russia. First, Russian state-owned energy companies do not fit the profile depicted above. The situation clearly needs the dynamics only attainable under competive conditions. Secondly, Russian state interests tend to come in conflict with the rational needs of the energy sector.

The 2003 Yukos scandal and its aftermath clearly indicates a conflict of interests between the state and private enterprise in the energy sector. It is often argued that Yukos founder, Mikhail Khodorkovsky, had become too mighty and did not know his place, by meddling into politics. He was considered a political threat to power. However, reviewing the case from an economic perspective is even more disastrous. What really was at stake, were the large investments into energy infrastructure that Yukos planned to make - the various pipelines the company wanted to build. If these plans had been realised, they would have made Khodorkovsky more or less politically independent from Russian state leverage. Still, economically, such investments would potentially have brought profits and prosperity to Russia's economy and, indirectly, to its people. Furthermore, they were exactly the kind of investments that were economically sound and would have developed the energy sector in a positive direction. Thus, by victimising Yukos for political reasons, Russia was rendered an economic loss that the state was unable to compensate for. Consequently, as Khodorkovsky's 2005 nine-year jail sentence serves to show, the interests of the state and private business are far from always compatible.

Since then, the tendency arising from the Yukos scandal has strengthened. Private companies in the energy sector meet with state or pseudo-state opposition. Deals once made are put into question. Pressure is brought to bear on outside actors, such as when Gazprom recently seized control over the Sakhalin offshore project, ousting a foreign consortium led by Shell. Environmental motives are given for action against foreign investors, whereas Russian companies would never meet with such demands. Also, as the Yukos case shows, expropriation has become a new method for the state to forward its own and associate interests.

The perspective becomes even more horrendous when reviewing the issue from a security point of view. In Putin's opinion, it seems that not having full control over Russia's energy resources would pose a threat to the country. Accordingly, Russia cannot depend on private, and often foreign, companies for its energy production. Furthermore, the country cannot depend on transit of oil and gas by pipelines running through foreign states. Consequently, new state-controlled pipelines are built bypassing intermediate countries, such as the Nordstream pipeline projected to run through the Baltic Sea. From an economic point of view, it is highly questionable whether this and similar pipeline projects are financially viable, especially as the costs for developing and expanding already existing pipelines over foreign territory would be much lower, as would even be the case of building new ones. Therefore, it is obvious that Putin's obsession with control is detrimental to almost any economic rationale.

So, who stands to gain from nationalisation of the Russian energy sector? Who is allowed to utilise the common assets and to what end? The obvious answer would, of course, be the Russian state. However, with lacking long-term commitment to maintenance and development, the overall GDP stands to lose from state ownership. The state will be forced to either carry the burden of investments or see energy incomes dwindle due to neglect and inefficiency. Consequential interruptions of delivery to costumers would not vouch for Russia's role as a reliable producer. So, why should Russia voluntarily assume these great costs, when private companies could freely do it with greater professionalism than the state would ever be able to do?

The other obvious answer would be that the Russian people would gain from nationalisation. However, to what extent are the energy incomes redistributed to the people, and if so, would it be in the true interest of the people? First, the Russians receive little of the energy profits. It is true, there have been some attempts at state social reform and economic support lately, but it is questionable whether this is motivated out of real concern for the people. An example is Russia's population decline, where Putin seems more worried about the decrease in the future number of conscripts for the military and similar issues, than the social malaise of the people itself. Also, if too great a proportion of the incomes would actually be distributed to the people, it might cause economic crisis due to consequential hyperinflation. Finally, a state-run energy sector would probably be less efficient than a private alternative, creating comparatively lower profits. The effect would be an overall lower GDP, negatively affecting the Russian people. Thus, it seems that the Russians have little to gain from nationalisation of the energy sector.

Then, does nationalisation of the state sector strenghten Russia in its foreign relations? Initially, it might seem that control of the energy - as a strategic resource - would strengthen Russia's international power. The threat of "turning the tap" would seem to be a constant leverage for Moscow towards foreign states, mainly the EU, dependent upon Russian energy. However, this is countered by an equal risk that foreign states would turn to other producers or seek alternative energy solutions, such as e.g. nuclear power. Still, as the example of the European Union shows, Russia is more dependent on the EU than the EU is of Russia. Also, the EU is becoming increasingly weary of Russian ambitions and the country's reliability as an energy deliverer. Moscow has declined to ratify the European Energy Charter Treaty. European initiatives to develop the energy contents in a renewed Partnership and Cooperation Agreement (PCA) have met with outright opposition from Russia. Thus, Moscow is sending an increasingly clear message to Bruxelles about its intentions: Russia is not to be trusted as a reliable partner to the European Union. Regretfully, these are exactly the sentiments beginning to grow in Bruxelles and European capitals.

Today, it is obvious that Putinist ideology is the foundation of the current nationalisation of the Russian energy sector. It is the sort of étatism that belongs to the 19th century. It is a statist view that emphasizes control over rationality. It is an antiquated geopolitical outlook that puts the map before the realities of modern society. It is a perspective where the power of a state is measured by the quantity of its population, not of its output. It is a perspective that sees foreign relations as a zero-sum game. That president Putin wants the state to assume control of Russia's energy resources is but another factor in this overall scheme. For him, that the state owns a country's resources is only the natural state of things - how it should be. Reviewing this perspective, the conclusion is apparent: Putinist ideology simply is a notion that lacks understanding of the modern world.

Still, what the modern world is about is cooperation to the common good of those who participate in it. Thus, what Putinist ideology disregards is a fact so obvious that it needs neither stating nor reiterating: Modern power derives from the relative gains of cooperation - not from conflict or absolute capabilities. Making it alone is simply not an option in the modern world, and still this is the absolutist approach that Putinist Russia is opting for. That it is no viable long-term option for any state, seems of no concern to the country's leadership. Sooner or later, Putin's path will, regretfully, come back with a vengeance to Russia and its people.

In the meantime, the common assets of Russia are utilised to the detriment of the country and its people. Nationalisation is not good for Russia, and thus the Russian people may gradually come to understand that Putinism is simply not good enough for them. Until then, Russia is caught in a nationalisation trap.

A Bursting Baltic Bubble?

Are the Baltic states facing an impending economic crisis? So seems to be the case, due to the current overheating of both Estonian and Latvian economies. Earlier this week, Standard & Poor's as well as Deutsche Bank warned that Latvia's economic imbalances might cause a currency devaluation. Estonia risks a similar fate in the runup to its 4 March parliamentary elections. Only Lithuania seems to be getting off scot free.

In January, Standard & Poor declared Latvia Europe's "most dynamic economy in 2007" with a GDP growth of 8.9%, and with neighbouring Estonia coming in second, with a 7.5% growth. Estonia and Latvia - along with Slovakia - are the fastest growing economies in Europe.

Growth, however, has a price. Both economies are facing an inflationary spiral with most economic indicators going wild. In the battle over customers, Latvian banks have lended money to consumers at an interest lower than the inflation rate, and Estonian banks have followed suit.

However, Latvia's problems are the most acute. Since January, economic growth has risen to 11%, by far exceeding the 6-7% that are long-term economically sustainable. High domestic demand and corporate investment rates add to the problems. The increase in imports - clearly over what the country exports - has also created a worryingly negative balance of trade.

As for the labour market, supply cannot meet demand as many Latvians work abroad. The annual wage-rises of an average 10% have so far been compensated by a corresponding growth in productivity, but this year the tendency is towards an impassable 20% rise.

What may really topple the economy, however, is the negative real interest rate combined with a high rate of public lending - largely in euro-loans. According to some sources, this has caused prices of real estate to double in recent years.

All in all, if Latvia were now to devalue its currency - the Lat - banks would be forced to compensate themselves by a drastic increase in interest rates. With loans largely in foreign currency, consumers would face acute solvency problems, potentially with a consequent crisis for the banking system. As it appears, recession seems to stand at the door.

So, what has the Latvian government done to curve inflation and battle economic overheating? Precious little, one must admit. Already last spring, Standard & Poor predicted several years' delay for Latvia's inclusion into the eurozone, postponing it for 2009-2010 at the earliest. Prognosis was based on sustained price growth, driven by demand and rising inflationary expectations. This, in itself, should have been a clear stop-sign for the Latvian government.

All the same, the Latvian economy is basically in good shape. The country's foreign debt is low and the state economy is under control. And, obviously, economy is booming. So, why waste a winning concept, seems to have been the reasoning of the government. Some measures have been made, but they have either failed or been dubious as for their effects.

Also, it is quite obvious that the government had had more reasons to be content. In October, the government coalition, led by conservative People's Party (Tautas Partija) leader Aigars Kalvītis, was the first to be re-elected since the country regained independence in 1991. No wonder the government had a laid back attitude to developments, wanting to enjoy its honeymoon with the voters as long as possible.

However, now the government has come to a rude awakening, as the situation has quickly gotten out of hand. The question is if it will dare to challenge the banking and financial sector, which - as in Estonia - belongs to its key support groups. It is questionable if the Kalvītis cabinet can rise to the challenge. In the meantime, the fear that the Baltic bubble bursts will linger on.

Getting too hot?

"Russia is a northern country and if temperatures get warmer by two or three degrees Celsius it's not that bad - we could spend less on warm coats and agricultural experts say that grain harvests would increase further." Thus, Russian president Vladimir Putin jokingly put it in 2003, opening a major international conference on climate change in Moscow. For long, Russia was hesitant to signing the Kyoto protocol on global climate change, before Moscow eventually subdued to international pressure in 2004.

Let's face it: Environmentalism is simply not something one would expect from Putin and his crowd of siloviki and oil barons. As Russia signed the Kyoto protocol in November 2004, it was against the strong advice of both the Ministry for Industry and Energy and the Russian Academy of Sciences. In exchange, Moscow received EU support for Russia's admission to the WTO, why the Kremlin probably considered the deal a fair trade. Warm feelings for preventing the greenhouse effect had little to do with Putin's position on Kyoto.

Russia's traditionally energy intensive industries would normally vouch for a negative stance on limiting the country's greenhouse gas emissions. However, this has posed no great problem for Russia, as the Kyoto protocol is calculated on the 1990 emission levels. Given the economic and industrial collapse of the early 1990s, Russia still has a long way to go before reaching such levels again. Instead, it has been argued that the country might actually benefit from the Kyoto protocol by selling emissions credits to other countries. With the current economic boom in Russia, though, the deal is increasingly questioned for concerns that it might hamper industrial growth. Not surprisingly, the mighty energy sector is one of the greatest critics of the Kyoto protocol. However, this might paradoxically become the opposite in a few years' time.

Yesterday, Russian gas monopoly Gazprom declared that its export of natural gas to Europe had decreased by 16%, as compared to the same period last year. The reason for Gazprom's drop in output was evidently warmer weather in Europe, leading to decreased consumer demand. Also, exports to the FSU dropped by 15%, and the supply to Russian consumers by 11% during the same period.

While it is still too early to say whether this winter's mild weather is due to global warming, it is quite clear that if this tendency would become permanent in years to come, it would have a grossly negative impact on international gas demand and prizes. One obvious loser of such a development would be Russia's energy sector, which constitutes the engine for the country's economic growth. Thus, if global heating would put a check on energy prizes, Russia's energy-dependent economy is a candidate for severe crisis.

So, should we expect Gazprom executives to turn into ardent environmentalists? Will Ivanov and Medvedev campaign to stop global warming for next year's presidential elections? Most probably not! Still, one never knows. When it comes to realities, Russian politicians are usually swift to change opinions if money is at stake. If plunging energy prizes would hit Russian pockets, we might witness an eventual shift in Kremlin views on global warming. As we have still to see the true consequences of the greenhouse effect, it remains uncertain how fast an impact it will have on global temperature levels. The forms of and extent to which global warming will affect Russia is thus for the future to decide.

The Putin Persuaders!

Take two relatively harmless compounds, say nitro and glycerine, mix them together and you have a very potent combination. Petersburg's Dmitri Medvedev in his first-ever television series... Sergei Ivanov in his first series since his good old Lubyanka days... internationally famous guest stars... glittering settings on the Red Square and in other famous pleasure spots... corrupt bureaucrats by the thousand... and tingling adventure combined with exhilirating tragedy.

In the first episode of "The Persuaders!" called Overture, Vladimir Putin, as the President, brings Sergei Ivanov - the Nevsky blueblood - and Dmitri Medvedev - the self made billionaire from out of the Petersburg slum - together. They are opposite characters, but together they are as explosive as dynamite. As the President says in the first episode: "I like the analogy and I light the fuse.”

Two mismatched, wealthy playboys engage in intrigue and high adventure in exotic locales as they set out to instigate criminal cases the police won't solve. One of them will assume the role of Russian president in a year, heralding the series' demise.

Currently, "The Persuaders!" is the most expensive television series ever produced, with location filming in Grozny, Davos, London and Sochi. While it is a huge success in Russia, Belarus and Kazakhstan, the series makes little impact in the US, where it airs opposite "Mission Impossible Iraq."

"The Persuaders!" has everything as it unveils the hectic exploits of two bloated middle-aged playboys who are tricked into becoming partners... a debonair Soviet chekist and a self-made gas billionaire from Petersburg. They're reluctant heroes, swept into a crazily dangerous life together. "The Persuaders!" is a series with all the sparkle of sovetskoye shampanskoye.

In its 24 episodes you will watch history unwind itself before the eyes of an amazed world. "The Persuaders!" is a series you simply must not miss.

Estonia: Battle by Bronze Proxy

Why is it that a WW II-monument repeatedly sparks bilateral crises between Estonia and Russia? This question has, in recent days, gained new relevance after strong Russian reactions against the Estonian parliament's decision to remove the so called Bronze Soldier (Pronkssõdur) soviet war monument from central Tallinn. The reason is simple: The Bronze Soldier has become a proxy for the conflict between Estonian and Russian interests in Estonia before the 4 March parliamentary elections. The Estonians thus vage a battle by bronze proxy.

It is becoming increasingly clear that Edgar Savisaar's Centre Party (Keskerakond), will stand as victors on election day, ousting the coalition government led by Prime Minister Andrus Ansip's Reform Party (Reformierakond). Such a result risks toppling the delicate balance between western financial interests, dominating the Estonian banking system, and Russian interests controlling the lucrative transit trade, with far-reaching consequences for domestic and foreign policy.

Economic interest has been one of the main driving-forces in Estonian politics since the country regained its independence in 1991. A division of labour was developed roughly between two opposing groupings - the Russians controlling transit trade and backed by Moscow, and the Estonians controlling the financial and banking sector and backed by western - mainly Scandinavian - interests. This is reflected also in politics. Thus, Savisaars Centre Party has gradually become Moscow's agent, with heavy economic backing from Russia, to the point that the party actually has entered into union with Russian power party United Russia (Единая Россия). Savisaar's main opponent, the Reform Party, is to the contrary linked to finance and banking dominated by western business interests. A final peculiar twist to the matter is that these two main contenders for political power in Estonia, in fact form the current coalition government, together with the People's Union (Rahvaliit).

It is obvious that the the Bronze Soldier crisis this time is a desperate attempt by the Reform Party, facing potential defeat, to gain votes by shedding light over the close relations between the Centre Party and Russia. So, who are the major players in Moscow's relations with Estonia? On the Russian side, two names stand out as safeguarding these interests, namely Gleb Pavlovsky, one of Russia's foremost "political technologists," and Igor Levitin, Russia's Minister of Transportation. Pavlovsky gained wider international attention in 2005, due to allegations of involvement in the dioxin poisoning of Ukrainian president-to-be Victor Yushchenko. As for Levitin, Savisaar the other year unsuccesfully tried to grant him Estonian citizenship due to his great services to the country.

Then, what is actually at stake for the upcoming elections? Estonia is currently struggling with an overinflated rate of public lending - a financial bubble that could easily burst in face of any radical change of power in Tallinn. If Savisaar's Centre Party would win on 4 March, this might well be the spark to set off a major financial crisis in Estonian economy. As the Reform Party relies on the finance and banking sectors that constitute the lenders, such development would be catastrophic to the party, and potentially topple the fragile balance of power within Estonian politics and society. Moreover, it would hit hard on the western investors, forming Estonia's link to European economy. Therefore, the Reformists now are desperate to undermine the Russian interests forming the power base for Savisaar's Centrists. Thus, the Bronze Soldier crisis must be seen as an attempt to provoke sanctions from Russia, which would hit the very transit trade that forms the basis of Savisaar's Russian backing.

As the Estonian parliament (Riigikogu) this morning decided to move the Bronze Soldier monument, the country's president, Toomas Hendrik Ilves, was quick to declare that he would not sign such legislation, claiming it to be in breach of the constitution. In this context, one must ask whether it really was necessary for the parliament to pass a law on the removal of the Bronze Soldier. If this really was the intention of the Reform Party, could it not have been easier accomplished by a simple government decision? From this perspective, it is quite obvious that the Reformist ulterior motive was to provoke a crisis with Russia that would benefit the party for the upcoming elections.

So, what have been the reactions in Moscow? Russian Foreign Minister, Sergey Lavrov, was quick to characterise the decision as a "grave mistake" and as a "blasphemous act." Also, the chairman of the Russian Duma's foreign relations committee said that the decision would have catastrophic consequences for Russian-Estonian relations, especially trade and economy, thus hinting at exactly the effect the Reformist Party wanted to achieve. However, Estonia's ambassador to Moscow, Marina Kaljurand, was quick to point out that Russia would be unlikely to impose bilateral sanctions on Estonia, not wanting to risk a "trade war" with the European Union. What will actually come out of this is yet to be seen, but it seems that Russian politicians would be shrewd enough to call the bluff. Still, Russian-Estonian relations have been shaky for long, as previously reported, so it is difficult to say what will come out of Moscow this time.

Here one should instead direct more attention to an overseen foreign policy factor in the context of Russian-Estonian relations, namely the projected Russian gas pipeline through the Baltic Sea. This crucial project for Russia is meeting increasing opposition among Baltic Sea states, and currently public opinion also in Sweden is turning against letting the pipeline run through its territorial waters. Would Sweden and other Baltic states turn down the project, with a Centrist government ruling Estonia, one scenario is that Russia might turn its frustration towards Tallinn, possibly giving massive support to Savisaar in order to gain a permanent influence over EU-member Estonia. This would create a very difficult terrain for the EU and Estonia's neighbours to manouevre, not to speak of what challenges it would pose to president Ilves and the Estonian political system.

Finally, is there any solution in sight for the issue of the Bronze Soldier monument? As for its removal, Estonia probably lost its chance back in 1991. However, doing so spurred an idea of expanding the monument to hold also statues of Estonian, German, as well as allied soldiers of WW II, along with various paraphernalia. This idea was never realised, paradoxically due to lack of metal for the statues. In the early 1990s, Estonia was a major exporter of metal, despite its evident lack of this type of natural resources. Mainly Russian business interests made fortunes by exporting whatever metal scrap they could lay their hands on, thus forming the mighty Russian economic interests that now dominate the transit trade. So, what then made Russian fortunes - the metal that might have expanded the Bronze Soldier monument into a unifying symbol for Russians and Estonians alike - now comes back to haunt the transit profiteers by a constant threat of sanctions to their trade. Had there been metal then, this explosive matter might have been defused at an early stage. Then, of course, Estonians and Russians would probably have found some other symbol to quarrel over.

Comment: On Baltic economy, especially Latvia, cf. "A Bursting Baltic Bubble." For an overview of Russian-Estonian relations see also "Estonia: Stalemate in Russian Relations."

Armenia Railroaded on Train Line

Last Thursday, an agreement was signed between Turkey, Georgia and Azerbaijan on the contruction of the Kars-Tbilisi-Baku railroad, further barring Armenia from infrastructural cooperation in the western Caucasus. Effectively, Armenia is increasingly isolated from regional developments of great consequence for the country's future. As a consequence, Armenia may be further driven into the arms of Russia, strengthening the delineation of spheres of interest in the Caucasus between Russia and the West.

The agreement, signed in Baku, by Turkish Prime Minister Erdoğan, Azerbaijani president Aliyev and Georgian President Saakashvili, bypasses Armenia by opting for the Kars-Akhalkalaki-Tblisi-Baku stretch, instead of the previously designated, and already existent, Kars-Gyumri rail line, going through Armenia. The Armenian-Turkish border, and along with it the Kars-Gyumri railway, has been closed since 1993, due to the 1988-1994 Armenian-Azerbaijani war over Nagorno-Karabağ. Thus, the Kars-Gyumri alternative would have meant reopening the border - a matter too difficult for Turkey to deal with in view of the sensitive Armenian question and upcoming parliamentary elections. As the opposite now is the case, Thursday's Baku agreement, by excluding Armenia, only serves to prolong a stifling status quo in relations between Yerevan and Ankara, and furthermore risks regionally isolating Armenia to the benefit of Russia.

The idea of the railway project, popularly known as the Iron Silk Road, originates from the 1960s, when the first plans to form, what is now known as, the Trans-Asia Railway Network (TAR) were raised. From the original plan of uniting 14.000 kms railroad from Singapore to Turkey, the scheme has grown to fathom some 81.000 kms, spanning all over the Eurasian continent. Thus, in November last year an agreement was signed to this end, under the aegis of the UN Economic and Social Commission for Asia and the Pacific (UNESCAP), as reported by RFE/RL-Online.

On the regional level, the question has been how to unite the various railway systems, linking the countries in the Caucasus with Turkey, as part of the larger Iron Silk Road project. Thus, a corresponding agreement was reached, by the Parliamentary Assembly of the Black Sea Economic Cooperation (PABSEC), as early as in 2005. It stipulated that the Kars-Gyumri-Tbilisi-Baku railway should be considered the only viable option for uniting the regional railway network, while it would connect all countries in the region, not need any substantial investments, and avoid any potential dividing lines. However, keeping to these and similar committments has proven very difficult.

On a strategic level, the Kars-Tbilisi-Baku agreement further underlines how the delineation of spheres of interest in the Caucasus between Russia and the West is exacerbated. Leaving Armenia out of the dynamics of regional development in this way, poses the question of how far-reaching a tacit understanding there is, that "Armenia belongs to Moscow." Another factor for leaving Yerevan at the side of the road, might be that western interests want to avoid being exposed to the risks of relying on infrastructure that, in event of crisis, may be controlled by Russia. A 5,000 man strong Russian troop contingent is currently posted on Armenian territory.

The agreement also shows how both Russia and the West attach an increasing importance to control over strategic infrastructure. It is no secret that the West's most important regional infrastructure project in Eurasia, namely the Baku-Tbilisi-Ceyhan pipeline (BTC), runs through Azerbaijan, Georgia, and Turkey, partly due to the ambition of strategic control. That Moscow has been negative to reopening the Kars-Gyumri railway, between Armenia and Turkey, serves as no surprise in this context.

As for Armenia's international position, Yerevan would like to regard itself as a "Finland of the Caucasus" in terms of dealing with Moscow. During the Cold War, the Finns succesfully defended their national sovereignty by a well-balanced policy towards Moscow, safeguarding their country against recurrent Soviet plans to bring Finland in under the umbrella of the Warzaw pact. The fears in the West of so called "finlandisation" thus in the end turned out to be exaggerated, although Helsinki at times was weighed down under the pressure of Moscow's interests.

While Finland could benefit from the Cold War balance-of-power system in Europe, as a counterweight to the Soviet Union, Armenia since the 1990s has had greater difficulty to gain a corresponding means of balance. A double-edged instrument has been to use the Armenian diaspora in the West, which could equally complicate as facilitate regional relations. In the context of the Kars-Gyumri railway, Armenia has used its Westen lobby-groups to bar the Kars-Tbilisi-Baku stretch favoured by Turkey. Thus, US Armenian groups last year succeeded in blocking American funding of the Kars-Tbilisi-Baku railway by securing a decision of the US Congress. By Thursday's Baku agreement, such measures now seem to no avail, as construction of the new railway stretch - bypassing Armenia - now are to be realised. However, the final word has perhaps not been said yet, judging from how positions on the issue have slided back and forth in recent years.

On a national level, the Baku decision comes at a most inconvenient time, as Armenia is up for parliamentary elections on 12 May this year. Overshadowed by the Orange and Rose revolutions in Ukraine and Georgia, Armenia is undergoing somewhat of a political refolution, as Ralf Dahrendorf so succinctly termed events in Central and Eastern Europe by the end of the Cold War. It remains to be seen whether Armenia will be able to carry through its process of change under the weight of various domestic and international pressures.

Regretfully, Thursday's railway agreement puts Yerevan at the crossroads between Russian influence and continued regional integration. It is thus fair to say that Armenia has been railroaded in making its independent and sovereign choice on its future forms of regional and international cooperation.

Turkmens Thrash Turkmenbash?

As Turkmenistan is facing presidential elections on 11 February, it is becoming increasingly clear that the late Nyýazow's successors have begun to turn their backs on Saparmurat Türkmenbaşy's political legacy, in brokering the terms of Aşgabat's new oligarchy.

Abandoning Nyýazow's unique Turkmen third way alternative to the values of modern civilization, seems the preferred choice of the new regime in the making. A recent secret poll, by the Eurasian Transition Group, shows that 81% of Turkmens support democratic reform, while 55% doubt that the upcoming elections will be free and fair. Even though these figures are far from reliable, they indicate popular fatigue with the current situation and a wish for change. The political realization of this has led political leaders to at least simulate a free and democratic process for the upcoming elections.

That Türkmenbaşy's political legacy is in question is furthermore signalled by declarations to restore the education system dismantled by Nyýazow, return to fully fledged pensions, grant free access to the Internet, and even restore railway traffic with Russia. All the same, the intentions of Turkmenistan's new leadership are far from clear. Thus, it seems that repression has been stepped up since the December 21 death of Nyýazow, and Reporters Without Borders singles out Turkmenistan as one of the most repressive countries in the world, in its 2007 annual press freedom survey. Despite reformatory indications, it thus stands beyond doubt that the main goal of current power in Aşgabat is to safeguard stability and a peaceful transition of leadership.

In an excellent article in Sunday's Washington Post, Peter Finn presents an overview of the situation for the upcoming elections. Whereas Turkmenistan for the first time allows more than one person to run for office, it is more than obvious that acting president Gurbanguly Berdimuhammedow will be declared winner on Sunday. Thus, the remaining five presidential candidates stand under constant supervision of the national security service, MNB, and their public appearances are directed by the political principles outlined by the leading candidate, Berdimuhammedow. Indeed, all measures since Nyýazow's death have been directed towards bringing Berdimuhammedow into power, including constitutional violations and changes.

As for power, it however seems that Berdimuhammedow is rather a frontman of an evolving political oligarchy, centred around the national security council, than a strong political figure in himself. Allegiance to the legacy of Nyýazow - interpreted however the new rulers see fit - here appears to become both a formula for legitimacy and a tool to suppress whatever opposition might arise. Consequently, it seems that Turkmenistan is poised for a transition to oligarchic dictatorship rather than any real or even gradual reform process.

As for international reactions to the new situation they may be characterised by a combination of relief over Nyýazow's death with hopes to exploit any chances of closer cooperation with Aşgabat, not least within the energy sector. Thus, both the US and the EU are stepping up their contacts with Turkmenistan. However, it is Russian president Putin that, by all appearances, stands as victor in the struggle over relations with Aşgabat. Putin was the first to single out Berdimuhammedov for support and thereby Moscow seems to be succesful in safeguarding Russian interests - primarily the 25 year gas accord with Turkmenistan, signed in 2003. By supporting Berdimuhammedow, Putin seeks a successor who will honour the committments so crucial for Russian interests in and influence over the region. However, also China lurks about in the scenery, trying to secure a recent deal to build a gas pipeline to meet the country's increasing energy demand.

To sum up, it is in the interests of both domestic and international actors to maintain stability in Turkmenistan, almost whatever it takes. It is likely that internal interests of the current regime will be strong enough to exercise oligarchic dictatorship with the silent consent of the international community. If worst comes to worst, Nyýazow can always be used as a common scapegoat for the country's lack of progress. Such acts of "turkmenbashing" however seem distant in today's Turkmenistan.

Russia Goes Ballistic over Missiles

A recent US proposal to deploy a ballistic missile defence system to NATO-members Poland and the Czech Republic, has provoked stern reactions from Moscow and citizens of the concerned countries alike, Washington Post reports. The US motive is to create a missile defence shield for Eastern Europe, protecting the region from attacks of "rogue states" such as Iran or North Korea.

The US plans are to place 10 interceptor missiles in Poland and a radar tracking station in the Czech Republic with the purpose to intercept intercontinental ballistic missiles (ICBMs). It thus appears that this would add a strategic perspective to the sort of tactical theatre missile defence that is currently within technical reach. The Bush administration perceives the initiative primarily as part of its international war on terrorism rather than as an element of regional security.

In contrast to this, Moscow regards these plans as directed also against Russia. In response, the Russian MFA stated that "the creation of a U.S. European anti-missile base can only be regarded as a substantial reconfiguration of the American military presence in Europe." It is "a mistaken step with negative consequences for international security."

In the 1980s, the Reagan administration's Strategic Defence Initiative (SDI) - commonly known as Star Wars - was one of the driving forces for the Soviet Union's defeat in the international arms race. Moscow then neither had the technique nor the resources to compete in developing a corresponding system. Star Wars thus presented a new phase in the arms race that would potentially render the soviet strategic advantage obsolete at a time when the USSR already was at loggerheads with maintaining the existing balance of power. Ever since, any proposal of this sort has hit a sore spot in Moscow.

To counter further NATO initiatives, then Russian Defence Minister, Igor Sergeyev, in 2001 proposed a common solution for a European Ballistic Missile Defense (BMD) system, instead of a NATO national missile defence (NMD), aimed at protecting the alliance's European members. NATO reactions were lukewarm, portraying the Russian proposal as an attempt to "drive a wedge between the US and its European allies."

In this context, it is interesting to note that this time the US proposal is on a bilateral level, viz. between Washington and Warzaw and Prague respectively and not as part of the NATO collective defence system. The feelings in Bruxelles and among NATO-members are that such a US unilateralist approach would further threaten to undermine the Atlantic alliance, adding to Washington's tendency towards multilateralism à la carte.

Also, popular protests against the US plans have begun to mount in both Poland and the Czech Republic. Recent reminiscences of Soviet bases in these countries remain a mental obstacle for people to accept foreign military elements on their soil. Fears are also rising that hosting an anti-missile defence system would rather make the Poles and the Czechs targets for attack than act as a means of protection. Still, many observers on both sides of the Atlantic also regard this as yet another US test of allegiance for the European states with the greatest debt of gratitude for their independence and security.

What stands out as perhaps the most peculiar part of Washintgton's proposal is how the Republican administration has revived one of its pet projects of the 1980s. Since then, the Star Wars/SDI remains an extremely expensive and technically cumbersome project with little proof of relevance as to its efficiency in countering current threats. That Europe would form the primary target of a potential Iranian or North Korean ICBM-attack is extremely unlikely in the foreseeable future for two obvious reasons. First, Europe poses no threat to either Iran or North Korea. Targeting Europe would thus only serve as a threat by proxy towards the United States. Secondly, if Iran or North Korea would indeed develop nuclear arms and ICBMs to carry them, the primary target would be the US and its regional allies in the vicinity of Teheran and Pyongyang - not a distant and inoffensive Europe.

Why is it then that the US wants these weapons in Europe? Using the terrorist threat as a pretext for toppling the nuclear balance in Europe, as Moscow holds, simply seems too far-fetched. Instead, the simple truth may be sought in the minds of Bush & co. Reviving Star Wars is like kissing the sleeping beauty. The beauty of it is that you know what to expect as long as she lies there sound asleep. What you do not know is who she will become when awoken. Still, it simply is too tempting to resist.

Update: See also Peter Finn's update on the issue in the February 21 issue of the Washington Post.

Making Frontpage News in Norway

A story partly based on a recent piece on Borat and Kazakhstan published on this weblog, today made the frontpage of the Norwegian daily Aftenposten - Norway's second largest newspaper with a circulation of about 300,000 copies.

The real argument of the Aftenposten story is that the comedian Sacha Baron Cohen has to periodically invent new role characters. Once roles such as Ali G or now Borat become publicly known, Cohen can no longer use them, as people know that their legs are being pulled. The absurd and very politically incorrect ideas that he expresses, provoke either support or confusion, but very seldom dissent. Politicians, businessmen or ordinary people are thus made out as fools or spineless.

As for the Aftenposten story, it ends with the argument on this blog, that Borat may actually be doing Kazakhstan a favour, by belittlement of problems with the oppressive and corrupt Nazarbayev regime. Can really a country with people as funny as Borat be all that bad when even the most despicable dictator appears to be a mere clown? Well, only the western public can judge, as "Borat: Cultural Learnings of America for Make Benefit Glorious Nation of Kazakhstan" is not likely to hit the cinemas of Astana and Almaty.

Five CIS Cities in Top Ten Polluted Places

Five out of the ten most polluted places in the world this year are to be found in the Former Soviet Union, according to a list published by the Blacksmith Institute. No, it's no beauty paget, even if the list is an annually recurrent event, shedding light upon some of the greatest man-made environmental disasters in history.

According to the UN, 20% of premature deaths in the world may be ascribed to environmental factors. "There are some towns where life expectancy approaches medieval rates, where birth defects are the norm not the exception. In other places children's asthma rates are measured above 90%, or mental retardation is endemic. In these places, life expectancy may be half that of the richest nations", the report states.

In Russian Dzerzhinsk, average life expectancy among men is 42 years and among women 47 years. This was one of the places where the USSR produced its chemical weapons during the Cold War. Norilsk houses the world's largest nickel producer, and life expectancy for factory workers is 10 years below the Russian average. In Rudnaya Pristan and Dalnegorsk, lead poisoning is endemic due to emissions from local lead mines. Levels of lead in children's blood are between 8 and 20 times higher than maximum allowable rates in the US.

Mailuu-Suu in Kyrgyzstan presents some of the highest figures of nuclear radiation in the world, due to the waste from soviet time uranium mining. The situation may also worsen as earthquakes threaten to negatively affect containment of radioactive waste in this area of high seismic activity. The situation sets the security of large tracts of Central Asia in peril, while the Mailuu-Suu river might carry great quantities of highly radioactive sediments to the Ferghana valley - the region's most densely populated area.

The most well-known place on the list is probably Chernobyl in Ukraine. Even 20 years after the accident, radioactivy is on such high levels to remain life hazardous during lengthy exposure. The 19 mile exclusion zone remains uninhabitable, and the number of thyroid cancer cases among people in exposed areas is on highly elevated. Even if efforts are made to improve the environmental situation, there are fears of a new disaster if the sarcophagus - the concrete inclosure of the reactor - collapses, or if nuclear waste leaks into the groundwater.

That the effects of soviet reign laid waste to large tracts of the Eurasian continent should be commonplace knowledge nowadays. There should thus be no wonder that five out of the ten most polluted places in the world are located in the former USSR. Still, have current rulers of these states learnt from historical mistakes? No, in many cases not. Recently, ideas of turning the rivers of Siberia are again becoming fashionable in both Russia and Kazakhstan. The last time this was tried - during the 1960s "Virgin Lands" project - it led to an environmental disaster of epic proportions. It seems that even the most obvious is beyond reach for these people to fathom. Perhaps, the truth of the matter is that too many political leaders in these countries simply do not care, come what come may.