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The Western MSM (mainstream media) was abuzz the last few weeks about how Obama’s apparent extension of a hand to Russia did not make them willing to unclench their fist, citing the closure of the Manas airbase in Kyrgyzstan. This was linked to Russia’s announcement of 150mn $ in aid and 2bn $ of credit to Kyrgyzstan, which was widely interpreted to be a bribe, a snub to the US or in some particularly nutty cases open support of the Taliban – as SWP put it, “objectively chosen to aid 8th century religious fanatics”.

Kyrgyzstan is a poor state relying on remittances from its workers in Russia, workers who are now being laid off as construction grinds to a halt. It is the only country in post-Soviet Central Asia to have rejected the status of a “developed” country to be eligible for more funds from the World Bank and other international development organizations. Coupled with the economic crisis sweeping the globe, this money is small change to Russia but a life-saver to Kyrgyzstan.

The perception that this is a Russian anti-American machination arrogantly dismisses Kyrgyzstan’s own incentives. It has not been happy with the American presence (see below). It is in their interest to play off Washington against Moscow for more aid; but ultimately, Russia is far more important to their economic development. Nonetheless, it would make sense for them to announce the shutdown of Manas in Moscow, immediately after getting promised these loans and aid, because then American ire would be deflected towards Russia. (After all, the US does have a penchant for sponsoring color revolutions in countries it doesn’t like).

Finally, the claim that Russia is aiding the Taliban is totally bogus. Frankly, considering the number of US military bases dotting the Middle East (there’s fifty) means that this cannot be a serious concern, especially given that Russia has extended its own hand in offering transport of non-military supplies through Russia. This is despite the fact that the US has repeatedly snubbed Russia in that region (and elsewhere) – it explicitly supported the mujahedeen in the 1980′s via Pakistan and Saudi Arabia with dollars and Stinger missiles without holding their beliefs to much scrutiny, negotiated with the Taliban in hopes of being allowed to build oil and gas pipelines from Central Asia through Afghanistan and into Pakistan, bypassing Russian control – in stark contrast to Russia (and interestingly, Iran), who recognized the Taliban for the evil they are early on and supported the Northern Alliance against them and dismissed Putin’s overtures in 2002 acquiescing to an increased American military presence in Central Asia with abrogations of missile-defense treaties and colored revolutions. Getting ahead of myself here, but the point stands that Russia gains absolutely nothing from hindering NATO from effectively fighting the Taliban; when the alternative is doing this themselves.

I found the following article to be particularly insightful, which I see fit to quote in full – The Manas Disillusionment. I have highlighted the more significant parts.

Kyrgyzstan threatens to evict the US from the Manas airbase as Moscow trumps Washington with attractive aid packages, while Bishkek grows increasingly disillusioned with what it views as US usury, John CK Daly writes for ISN Security Watch.

By John C K Daly for ISN Security Watch

If those inside the Beltway are to learn anything from their Kyrgyz experience, it’s that Reaganesque “trickle down” economics in fighting a conflict halfway around the world is unlikely to buy local hearts and minds, much less allies.

Meeting with his Russian counterpart on 4 February in Moscow, Kyrgyz President Kurmanbek Bakiyev announced that he had decided to close the US airbase at Manas – a move that will complicate President Barack Obama’s stated intention to surge an additional 30,000 troops into Afghanistan and logistics for Operation Enduring Freedom.

When the Kyrgyz parliament votes on the president’s proposal, perhaps later this month, the measure is likely to pass, as Bakiyev’s Ak Jol party controls 71 of the legislature’s 90 seats. Under the terms of the Status of Forces Agreement (SOFA), the US will then have 180 days to vacate the base, located some 27 kilometers from the capital, Bishkek.

Manas was established on 4 December 2001 under the joint Kyrgyz-US SOFA agreement, which granted the Pentagon the right to use the airbase for a bargain rent of US$2 million annually. The Defense Department selected Manas because its 14,000-foot runway, originally built for Soviet bombers, could service US C-5 Galaxy cargo planes and 747s in their flight to Afghanistan. Of Kyrgyzstan’s 52 airports, Manas was the only one with a lengthy runway capable of supporting international flights. An adjacent 32-acre field was initially utilized for a tent city for US personnel, which beginning in mid-2004 was replaced by more permanent structures at a cost of US$60 million.

Manas is home to the 376th Air Expeditionary Wing and serves as the premier air mobility hub for NATO’s International Security Assistance Force (ISAF) and coalition military operations in Afghanistan. According to the US Defense Department, Manas handles about 15,000 passengers and 500 tonnes of cargo monthly. Last year, coalition KC-135s stationed there flew 3,294 missions disbursing 97,226 tonnes of aviation fuel to 11,419 coalition aircraft over Afghanistan and supported more than 170,000 coalition personnel transiting in and out of Afghanistan.

Pentagon blindsided

Judging by Washington’s reaction, Bakiyev’s decision blindsided the Pentagon – though in reality it is the culmination of years of American obtuseness, arrogance and penny-pinching, the warning signs of which have long been visible.

There is an atmosphere of faint hope in Washington that the announcement is in fact a negotiating attempt by Bishkek to up the rent for the base, but the State Department and Pentagon have been scrambling to find alternatives, holding discussions with Tajikistan, Uzbekistan and Turkmenistan while dispatching negotiators as far afield as the United Arab Emirates, Kuwait, Qatar, Bahrain and Turkey in case Bakiyev follows through.

The Pentagon was so certain that it was secure in Manas that last October the Army Corps of Engineers issued a pre-solicitation notice for potential contractors for up to US$100 million in improvements to the base. There were rumors that the Pentagon was also seeking an additional 300 hectares for expanding the base.

Moscow trumps Washington

While both Bakiyev and Russian President Dmitry Medvedev strenuously deny it, generous Russian loans totaling US$2 billion and a non-repayable US$150 million grant, announced the day before Bakiyev made his pronouncement, undoubtedly played no small part in the decision.

To put the proffered assistance in context, Moscow’s financial aid is worth double Kyrgyzstan’s current annual GDP, and the Russian assistance stands in stark contrast to Washington’s fiscal policy over the years towards Kyrgyzstan, which has never offered the country any loans.

But Kyrgyzstan is no stranger to haggling, and for now parliament has decided to delay the vote on closing Manas until it receives the first tranche of Russia’s promised US$450 million.

Besides the US$150 million outright grant, the Russian aid includes US$300 million in preferential credit for 40 years at a symbolic interest rate of 0.75 percent, with a grace period of seven years before the first payment is due.

An intergovernmental agreement signed during Bakiyev’s Moscow visit sets up a joint venture between Kyrgyzstan’s Elektricheskie Stantsii and Russia’s Inter RAO EES, and the bulk of the loan (up to US$1.7 billion) will go towards the construction of the 1,900-megawatt Kambar-Ata Hydroelectric Power Station-1 on the Naryn River.

Kambar-Ata epitomizes why Russia is currently in the ascendancy in Kyrgyzstan and the US is being shown the door. It is an indigenous energy project that has direct bearing on the quality of life for the average Kyrgyz. In contrast, the US for the last eight years has displayed indifference to Kyrgyzstan’s energy sector, as it is devoid of exportable hydrocarbons, viewing the country instead solely in military terms.

While much western commentary implies that the loans were ad hoc arrangements, in fact they represent part of US$2 billion in assistance to Kyrgyzstan first promised by then-president Vladimir Putin in August 2007, which in turn built upon a 15 December 2006 Russian-Kyrgyz agreement to spend US$1 billion to construct the Kambar-Ata-1 and Kambar-Ata-2 hydroelectric cascades. The project is a massive undertaking which on completion could not only supply electricity not only for domestic consumption but also for export to Afghanistan, China and Pakistan.

Against such largesse, Washington’s fiscal assistance to Kyrgyzstan looks miserly indeed. However, the Pentagon insists that the US has given Kyrgyzstan more than US$150 million annually in aid. Furthermore, it insists that it has been paying US$63 million in rent for Manas, but other sources, including the Kyrgyz government, say otherwise.

According to Radio Free Europe/Radio Liberty, funded by the US Congress, the US paid US$2 million a year to use Manas for the first five years of the base’s operation. In 2006, this was increased to US$17.5 million, while the US funded other in-country programs that totaled approximately US$100 million. On 6 February, Kyrgyz Finance Minister Tajikan Kalimbetova corroborated the RFE/RL figures to parliament, according to Informatsionnoe agentsvo 24 press klub in a 6 February report.

“There is not in Kyrgyzstan a single bank representing the interests of the United States, the trade balance is small, there is no major investment project involving US firms. There is sufficient economic potential, but very little use is being made of it, unfortunately,” Informatsionnoe agentsvo Regnum quoted Kyrgyz Prime Minister Igor Chudinov as saying on 7 February.

And for the average Kyrgyz, there has been no “trickle down” of the loudly proclaimed American assistance.

Kyrgyz disillusionment

The potential utility of Manas for the Pentagon is not limited to operations in Afghanistan; the fact that it is only 320 kilometers from the border with China’s westernmost province of Xinjiang means that tankers based at Manas put US aircraft within range of China’s nuclear test site facilities at Lop Nor in Xinjiang. Manas is a sore point with both the Russians and Chinese as it affords the US military the ability to snoop on their military activities.

Unease over the Pentagon’s possible uses of the airbase is not limited to Kyrgyzstan’s neighbors. Kyrgyz lawmakers have grown increasingly apprehensive with what the Pentagon might do with its untrammeled access to Manas.

On 21 May 2007, lawmaker Almanbet Matubraimov quoted remarks by US Secretary of State Condoleezza Rice that in case of a military offensive against Iran, the first air attack would be delivered from Manas, to which Iranian President Mahmoud Ahmadinejad promised that Iran would immediately reply by targeting the site from where the attack was launched, Informatsionnoe agentsvo AKIpress reported.

Two years after Manas was established, Russia founded its own airbase at Kant, its first outside of Russian territory since the 1991 collapse of the USSR, under an agreement within the framework of the Collective Security Treaty Organization, a post-Soviet regional security bloc that besides Russia includes Kyrgyzstan, Kazakhstan, Tajikistan, Uzbekistan, Armenia and Belarus. Kyrgyzstan is the only country in the world with both American and Russian bases on its territory.

At a popular level, Kyrgyz disillusionment over Manas developed gradually. When the base opened people hoped that there would be employment opportunities, but the only Kyrgyz hired to work were employed largely as janitors. According to Moskovskii Komsomolets, in 2005-2006, the salaries of these workers were not even paid. ISN Security Watch has not been able to independently confirm this report.

Shortly after Manas began operations, the Pentagon signed contracts with Manas International Services Ltd. and Aalam Services Ltd., the only two aviation fuel suppliers in Kyrgyzstan. Both companies were controlled by relatives of then-president Askar Akayev. In addition Aydar Akayev, the president’s son, was a part owner of Manas. The Pentagon also agreed to international civil aviation rates for the daily take-offs and landings of military aircraft at Manas to Akayev’s cronies as well. None of these Manas-related revenues were reported in Kyrgyz government budgetary statistics.

Following the “Tulip Revolution” which deposed Akayev, the two entities came under the scrutiny of the Kyrgyz government and FBI, but the Pentagon stoutly maintained its innocence regarding the US$207 million it spent on inflated fuel contracts. The new president, Bakiyev, insisted that the US make US$80 million retroactive lease payments and assist in recovering the allegedly purloined contract money. Pentagon spokesman Bryan Whitman responded that “any possible misappropriation of funds is an internal Kyrgyz matter.”

Other simmering complaints included a 26 September 2006 aircraft collision involving a KC-135 and the presidential Tu-154, for which the Americans declined to take responsibility, and the reportedly frequent dumping of tonnes of surplus fuel over Kyrgyz farms adjoining the base.

Things came to a head on 6 December 2006, when 20-year old US soldier Zachary Hatfield shot twice and killed 42-year-old Kyrgyz Aleksandr Ivanov, an ethnic Russian Kyrgyz, at the airbase’s entry gate. Ivanov worked for Aerocraft Petrol Management, which provides fuel services for Kyrgyz and international civilian aircraft. Hatfield maintained that he fired in self defense after Ivanov approached him with a knife. Adding to local anger was the fact that at the time of the shooting Ivanov was about 5-6 meters away from Hatfield and Ivanov’s knife was found 20 meters away from the site of the incident, while rumors swirled that the guard was drunk at the time of the incident.

The Kyrgyz government insisted that Hatfield be handed over for trial, but the US military spirited Hatfield out of the country on 21 March 2007 even as talks about Hatfield’s legal status were ongoing. Adding insult to injury, the US government initially offered Ivanov’s widow US$2,000 in compensation, an amount that Galina Skripkina, a lawyer representing Ivanov’s widow, described as “humiliating,” according to a 12 March 2007 Associated Press report.

Despite the Kyrgyz disillusionment, there are experts who believe that Bishkek’s latest threat is ill-advised. Dr S Frederick Starr, chairman of the Central Asia-Caucasus Institute & Silk Road Studies Program Joint Center, told ISN Security Watch that Kyrgyzstan’s move to close the Manas air base “is the wrong action done at the wrong time and in the wrong way.”

“It will send the clear signal that Kyrgyzstan has abandoned a balanced foreign policy. But it is not too late for the Kyrgyz Republic and US to work together to correct it,” he said.

Blinded by the perfidious Russian bear

Given the obvious disenchantment with the deal, only the most blinkered of Washington bureaucrats can have been surprised by Bakiyev’s 4 February announcement.

While recidivist Washington cold warriors are quick to see the perfidious Russian bear behind their ouster, in fact the Kremlin has thrown Kyrgyzstan a desperately needed fiscal lifeline even while Russia (along with the former Soviet Central Asian republics) has a desire to see ISAF stabilization efforts succeed in Afghanistan.

Russia’s ambassador to NATO, Dmitry Rogozin, succinctly summed up Moscow’s current thinking when he said, “In the event of NATO’s defeat in Afghanistan, fundamentalists who are inspired by this victory will set their eyes on the north. First they will hit Tajikistan, then they will try to break into Uzbekistan… If things turn out badly, in about 10 years our boys will have to fight well-armed and well-organized Islamists somewhere in Kazakhstan,” the International Herald Tribune reported on 24 January.

If the Obama administration is serious about making Afghanistan the focal point of its anti-terrorist operations, it might be forced to reexamine its relationship with Kyrgyzstan. Russia, China and India all have an interest in seeing the pacification efforts in Afghanistan succeed, and Russia has offered to open a supply route for non-military supplies, along with several Central Asian nations.

Washington may yet have an opportunity to remain at Manas, as Melis Erjigitov of the parliament’s press service stated on 11 February the Manas base closure bill was not on parliament’s agenda for February. But this is not likely to happen if Washington refused to change its mindset and one-up Russia in terms of aid.

Is Washington prepared to let Manas go? That is unclear, but a 10 February statement by Secretary of Defense Robert Gates indicates that Washington may give up and look elsewhere. “Manas is important, but not irreplaceable,” Gates said in a quote carried by the Washington Post on 11 February.

Regulars here will know that I don’t see Chavez as the demonic dictator he is frequently portrayed as in the media. In particular they’ve been having a field recently when Venezuelans voted in favor of overturning term limits for certain classes of elected officials, including the Presidency (and thus joined the leagues of such totalitarian regimes like the UK or Australia). Venezuela’s Referendum: Media’s Double Standards has more…

With Sunday’s Venezuelan referendum on term limits, we can expect to hear a lot about Venezuelan president Hugo Chávez’s “plan to become president for life” and its reflection on “Venezuela’s battered democracy”–as the New York Times editors put it (http://www.nytimes.com/2007/12/01/opinion/01sat2.html) around the time of Venezuela’s last (failed) term limits referendum.

But when Colombian President Álvaro Uribe’s efforts to change a constitutional prohibition barring a president from serving more than one term succeeded in 2005, the U.S. media took little notice, and Uribe’s reputation as the U.S.’s favorite ‘democrat’ in the region remained intact.

…It would seem the role of U.S. reporting and opinion on Venezuela (and Colombia) is less about informing the public about real threats to democracy and human rights in Latin America than it is about serving as a propaganda arm of U.S. foreign policy. One would be wise to remember this when reading about Venezuela’s referendum this weekend.

Finally, lots of stuff seems to be crashing into each other recently, from satellites to nuclear subs. Freaky. And not a bad metaphor for what is going on with the global economy. More on that this weekend, hopefully.

(Republished from Sublime Oblivion by permission of author or representative)
 
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For all the noise being made this month about Georgia, about NATO, about Tibet, etc, possibly the most portentous is that it seems Russia hit its oil peak (strictly speaking, its second – the first happened in 1987), well in line with peakist predictions. Production increases via application of new technology, as seen in the late 90′s and early 2000′s have been mostly exhausted; there are no megaprojects to bridge the gap beyond 2010. (There has been some noise about new oil field discoveries off Brazil’s coast which could contain as many as 33bn barrels, which has our dear Economist rejoicing: “the discoveries do suggest that the gloomiest pundits are wrong to predict that the world will soon run out of oil”. Just two problems. The issue is not about the world running our of oil – it’s about economically damaging declines in production which will, and are, hitting crucial sectors like transport and agriculture. Secondly, and more to the point, even the high estimate of 33bn barrels is enough for less than half a year of today’s demand of 85bn barrels.) Massive expansion in Russia has been the main reason while oil is peaking now, rather than five years ago. This, coupled with stagnant Saudi Arabia ‘refusing’ to increase oil production so as to leave more for future generations and oil prices rising to 120$, looks set to vindicate the Oil Drum predictions below.

The phenomenom of peak oil is starting to become a new conventional wisdom. Krugman penned an excellent article on this, an interesting example of mainstream economists and “doomers” getting wedded:

Nine years ago The Economist ran a big story on oil, which was then selling for $10 a barrel. The magazine warned that this might not last. Instead, it suggested, oil might well fall to $5 a barrel.

In any case, The Economist asserted, the world faced “the prospect of cheap, plentiful oil for the foreseeable future.”

Last week, oil hit $117.

It’s not just oil that has defied the complacency of a few years back. Food prices have also soared, as have the prices of basic metals. And the global surge in commodity prices is reviving a question we haven’t heard much since the 1970s: Will limited supplies of natural resources pose an obstacle to future world economic growth?

How you answer this question depends largely on what you believe is driving the rise in resource prices. Broadly speaking, there are three competing views.

The first is that it’s mainly speculation — that investors, looking for high returns at a time of low interest rates, have piled into commodity futures, driving up prices. On this view, someday soon the bubble will burst and high resource prices will go the way of Pets.com.

The second view is that soaring resource prices do, in fact, have a basis in fundamentals — especially rapidly growing demand from newly meat-eating, car-driving Chinese — but that given time we’ll drill more wells, plant more acres, and increased supply will push prices right back down again.

The third view is that the era of cheap resources is over for good — that we’re running out of oil, running out of land to expand food production and generally running out of planet to exploit. I find myself somewhere between the second and third views.

There are some very smart people — not least, George Soros — who believe that we’re in a commodities bubble (although Mr. Soros says that the bubble is still in its “growth phase”). My problem with this view, however, is this: Where are the inventories?

Normally, speculation drives up commodity prices by promoting hoarding. Yet there’s no sign of resource hoarding in the data: inventories of food and metals are at or near historic lows, while oil inventories are only normal.

The best argument for the second view, that the resource crunch is real but temporary, is the strong resemblance between what we’re seeing now and the resource crisis of the 1970s.

What Americans mostly remember about the 1970s are soaring oil prices and lines at gas stations. But there was also a severe global food crisis, which caused a lot of pain at the supermarket checkout line — I remember 1974 as the year of Hamburger Helper — and, much more important, helped cause devastating famines in poorer countries.

In retrospect, the commodity boom of 1972-75 was probably the result of rapid world economic growth that outpaced supplies, combined with the effects of bad weather and Middle Eastern conflict. Eventually, the bad luck came to an end, new land was placed under cultivation, new sources of oil were found in the Gulf of Mexico and the North Sea, and resources got cheap again.

But this time may be different: concerns about what happens when an ever-growing world economy pushes up against the limits of a finite planet ring truer now than they did in the 1970s.

For one thing, I don’t expect growth in China to slow sharply anytime soon. That’s a big contrast with what happened in the 1970s, when growth in Japan and Europe, the emerging economies of the time, downshifted — and thereby took a lot of pressure off the world’s resources.

Meanwhile, resources are getting harder to find. Big oil discoveries, in particular, have become few and far between, and in the last few years oil production from new sources has been barely enough to offset declining production from established sources.

And the bad weather hitting agricultural production this time is starting to look more fundamental and permanent than El Niño and La Niña, which disrupted crops 35 years ago. Australia, in particular, is now in the 10th year of a drought that looks more and more like a long-term manifestation of climate change.

Suppose that we really are running up against global limits. What does
it mean?

Even if it turns out that we’re really at or near peak world oil production, that doesn’t mean that one day we’ll say, “Oh my God! We just ran out of oil!” and watch civilization collapse into “Mad Max” anarchy.

But rich countries will face steady pressure on their economies from rising resource prices, making it harder to raise their standard of living. And some poor countries will find themselves living dangerously close to the edge — or over it.

Don’t look now, but the good times may have just stopped rolling.

No wonder survivalism is becoming respectable again.

(Not that I think the world is going to become a Mad Max abode; there’s still plenty of discretionary energy consumption that can be cut, and in the longer term future both wind and solar energy have very good prospects. Nonetheless, according to this study, “Exergy services can be equated to exergy inputs multiplied by an overall conversion efficiency. which, of course, corresponds to cumulative technological improvements over time. Based on this hypothesis economic growth from 1900 to 1975 or so is explained almost perfectly, exceptfor wartime perturbations.” Hence I suspect there will be a period of serious economic disruption in the period between 2010-20, when oil and natural gas spiral down and both coal and uranium will be hard pressed to fill the gap (economically viable reserves may well be close to peak, as described here (coal) and here (uranium), and 2030-50, when renewable energy starts to come on-line in a really big way.)

Not surprisingly, two key trends – rising energy prices and climate change – are colluding to produce a scramble for the Arctic and its lucrative hydrocarbons deposits. Russia has foresightedly been marking territory by staking claims in the UN, planting its flag at the North Pole sea floor and carrying out strategic bomber flights over the Arctic. Canada, Denmark and Norway have also been getting on in the action, while the US has been lethargic. Climate models indicate an ice-free summer by 2015, meaning northern Russia will become a major new transportation hub between Europe and East Asia (thus making the old dream of a North-East passage a reality).

While wildlife wilts, agriculture booms – “Greenland is experiencing a farming boom, as once-barren soil now yields broccoli, hay, and potatoes”, and Russia keeps getting warmer. (What with rising world grain prices and the big lands left fallow following the Soviet collapse, it is easy for Russia to cement its status as a leading grain producer (from 81mn tonnes in 2007 to 110-120mn tonnes within a decade) by expanding the agricultural sector, a trend explained in The Medvedev Economy and confirmed by state investment into agriculture.) Not only will Russia remain a major hydrocarbons exporter, but will add cereals to its portfolio (which will, besides, increase in price), thus avoiding the fatal Soviet situation where profits from oil exports were eaten up by having to buy Western grains.

But returning to the FP Arctic Meltdown article and hydrocarbons,

The largest deposits are found in the Arctic off the coast of Russia. The Russian state-controlled oil company Gazprom has approximately 113 trillion cubic feet of gas already under development in the fields it owns in the Barents Sea. The Russian Ministry of Natural Resources calculates that the territory claimed by Moscow could contain as much as 586 billion barrels of oil — although these deposits are unproven. By comparison, all of Saudi Arabia’s current proven oil reserves — which admittedly exclude unexplored and speculative resources — amount to only 260 billion barrels.

Currently, Russia has passed its second oil peak. Could the above make for a third peak? Discovery precedes recovery by around 30 years. 586bn barrels is about twice bigger than oil reserves in Russia proper before extraction ever began. Without ice, the extractive environment in the Arctic will be comparable to that of the North Sea. As such, it is plausible that Russia may even, around 2020-30, experience a third oil peak, at a time when global supply is severely constrained and prices are at 300-400 $ per barrel. What with its current (relatively low) consumption, this means that Russia may be spared from the energy crunch that will hit other energy-dependent economies in this time period.

Perhaps most significant will be the geopolitical impacts (which, btw, we have covered in Towards a New Russian Century?). Russia is going to have to fundamentally rethink its traditional conceptions of itself as a land power, strategically weak and surrounded by predatory peoples who periodically exhaust the carrying capacity of their lands and launch invasions. It is going to become surrounded by ice-free water on two sides, along whose coasts will accumulate a rapidly expanding population (especially if environmental collapse causes mass immigration from South Asia, the Middle East and the Far East). This, along with a much greater stake in coastal transportation and off-shore hydrocarbons deposits, will require a much more powerful navy. No wonder Russia has tentative plans to create the world’s second largest surface navy within the next two decades, to which purpose a 410x100x14m drydock is currently under construction at Severodvinsk.

The IMF has released its prognosis for the world economy. A slowdown is inevitable, driven by a US correction due to a housing crisis and its contagion of the world financial system.

Global growth will decelerate in 2008, led by a sharp slowdown in the United States, amid a housing correction and a financial crisis that has quickly spread from the U.S. subprime sector to core parts of the financial system, the IMF says in its latest World Economic Outlook.

Citing the unfolding financial market turmoil as the biggest downside risk to the global economy, the April 2008 report said the IMF expects world growth to slow to 3.7 percent in 2008—0.5 percentage point lower than what was forecast in the January 2008 World Economic Outlook Update.

Further, world growth would achieve little pickup in 2009, and there is a 25 percent chance that the global economy will record 3 percent or less growth in 2008 and 2009, equivalent to a global recession.

The main emerging market economies will diverge rather than decouple, with growth in China, India, Russia and CEE slowing but not catastrophically so, remaining close to their long-term trend rates.

However, the government is even more optimistic, projecting 7.6% growth for 2008. Considering that Q1 GDP growth was 8.0%, driven as in the year before by consumption and investment, they have grounds for their optimism. On the other hand, CPI (inflation) is rising worrying fast, reaching an annualized rate of 13.3% this March, although it should be noted this is a worldwide phenomenom experienced by China (8.3%), India (8.6%), Czech Republic (7.1%) and Latvia (16.8%).

The Ukraine (26%+) has been hit not only by high food and energy prices, but populist government largesse. (To take their minds off these matters, perhaps that’s why Hitler action dolls have gone on sale there, more proof if any is needed of the proclivities to fascism of certain sections of Ukrainian society. Gazprom will probably end 2008 as the company with the world’s second highest revenue (around 41.5bn $), similar to the budget of an economic basket case, say, Ukraine (43bn $). (Can’t help making these cheap shots, just ignore them if they irritate you).

The IMF has also released new estimates for GDP growth through to 2013. By the end of that period, Russia’s PPP GDP should overtake Latvia’s and be level-pegging with Poland’s. The rise in nominal GDP is projected to be more dramatic (graph lifted off this thread):

The Economist has an interesting graph breaking down GDP increase for major regions in the world by capital, labor and total factor productivity (GDP itself can be expressed as a Cobb-Douglas function of the above 3 components) from a WB report, Unleashing Prosperity.

It is a splendid vindication of the ideas I expressed in Education as the Elixir of Growth. There, I made the argument that the education/’Human Capital Index’ (HCI) of each country is matched to a ‘potential GDP level’; where there is a large gap between potential and actual GDP, economic growth is highest. This above all explains the impressive economic growth we’re seeing in well-educated but relatively poor countries like Russia (once it abandoned its socialist shackles), and explains well the unimpressive growth of countries like Brazil, an badly-educated country with a correspondingly unimpressive economy.

However, the linkages between HCI and productivity are even higher than between HCI and GDP (as GDP also depends on labor and capital inputs, which themselves depend on other demographic and social factors). From the chart, we can see that middle-income CIS countries (of whom Russia is, by far, the largest and most significant) had the largest increases in TFP, thus reflecting the huge gaps in its potential and actual productivity. While China’s absolute growth was much larger, almost half of it was down due to increases in labor and capital. However, considering China’s recent labor shortages and its unsustainably high investment rates, it is very unlikely that double-digit growth will continue in the near-to-medium future, particularly further taking into account that a) exports will be hit by US recession and b) from 2009 onwards the oil peak will start biting ever harder (as covered above). Latin American countries were the worst performers, seeing no improvement in TFP – in other words, they are about as productive as their levels of human capital allow them to be (withouta resource windfall or two).In a snapshot of other economic and related news, the housing bust has spread to the UK. Haiti’s government collapses after food riots – an ominous foreboding of things to come elsewhere? Between 2000 and 2007, median family incomes stagnated in the US, in stark contrast to the period between every other recession (the fact that the 2000′s saw a broad consumer boom becomes all the more worrying). The falling dollar has made US assets attractive, and Russia has accumulated around 10% of US steelmaking capacity – although it has not limited itself to the US, but also went on a shopping spree around Germany. Russia may allow the ruble to appreciate to rein in inflation. Moscow’s budget is now as big as New York’s. Confidence in the economy is increasing. According to the FT, Moscow could become Europe’s second financial center (after London) in ten to fifteen years. The Russian ‘brain drain’ has to a large extent ceased as funding and salaries increase in academia.


On 21st April, Georgia accused Russia of an “unprovoked act of aggression” after a Russian jet allegedly shot down an unmanned Georgian reconnaissance plane over Abkhazia. This came in the wake of Russia stepping up its political representation in the region, while Georgia implicitly compared Western policy towards Russia with Nazi appeasement. Meanwhile Putin urged the West not to ‘demonise’ Russia. (The IHT has a piece that criticizes US aloofness in its relations with Russia in The Missing Debate.)

Watch the cool video below, it’s now every day that you get to see a MiG-29 fire an R-60 missile at CBDR, within visual range and head on.
Presumably Russia wishes to make a statement that it is ready and willing to defend Russian citizens (i.e. the vast majority of Abkhazians, and South Ossetians). It is also Russia’s traditional foreign policy level over Georgia – it’s separatist enclaves – being exploited. When Georgia pursued a relatively neutralist line towards Russia (under Shevardnadze), Russia kept at arms length from the separatists, but established a military presence in the region. Now that Georgia has received a promise of eventual membership from NATO, however, the levers have been pulled. If Georgia received MAP at the next summit, expect formal recognition of Abkhazia and South Ossetia.
A German man is on trial in Germany for allegedly selling military technology to Russian intelligence. The Russian Army apparently has some serious problems with obesity. Greece agrees to host a section of Gazprom’s planned South Stream pipeline. Berlusconi held his first foreign meeting with Putin on 17th April, and Robert Amsterdam penned an acerbic yet poignant portrait of the less wholesome similarities between the two countries.
The most recent data on Russian and American strategic nuclear armaments, as declared for the START Treaty, is available here. In contrast to the late Soviet period, it is now the US that has a preponderance of platforms. The breakdowns in deployed systems, Russian and US respectively, go as follows: ICBM’s (481 to 550); SLBM’s (288 to 432); heavy bombers (79 to 243); total (848 to 1225). The breakdown by numbers of deployed warheads is: ICBM’s (2027 to 1600), SLBM’s (1488 to 3216); heavy bombers (632 to 1098); total (4147 to 5914). The breakdown by throw-weight for ICBM’s and SLBM’s is 2370MT to 1830MT. In other words, while Russia has a slightly larger overall megatonnage, it has fewer strategic platforms and its missiles are less accurate. This is not yet a critical situation, what with the current international relations paradigm; nonetheless, further investments are necessary, particularly into the submarine and bomber part of the triad as well as ABM, in anticipation of the end of MAD due to the development of effective and comprehensive missile shields – which are closer to fruition, at least in the US, than most people realize. Perhaps I’ll write more on this in the future.
An interesting article from the Times on WMD developments in Syria and North Korea.
Foreign Affairs has The Age of Nonpolarity as its kindpin article for May/June.
Summary: The United States’ unipolar moment is over. International relations in the twenty-first century will be defined by nonpolarity. Power will be diffuse rather than concentrated, and the influence of nation-states will decline as that of nonstate actors increases. But this is not all bad news for the United States; Washington can still manage the transition and make the world a safer place.
Indeed, one of the cardinal features of the contemporary international system is that nation-states have lost their monopoly on power and in some domains their preeminence as well. States are being challenged from above, by regional and global organizations; from below, by militias; and from the side, by a variety of nongovernmental organizations (NGOs) and corporations. Power is now found in many hands and in many places…Today’s world is increasingly one of distributed, rather than concentrated, power.
Getting everyone to agree on everything will be increasingly difficult; instead, the United States should consider signing accords with fewer parties and narrower goals. Trade is something of a model here, in that bilateral and regional accords are filling the vacuum created by a failure to conclude a global trade round. The same approach could work for climate change, where agreement on aspects of the problem (say, deforestation) or arrangements involving only some countries (the major carbon emitters, for example) may prove feasible, whereas an accord that involves every country and tries to resolve every issue may not. Multilateralism à la carte is likely to be the order of the day.
I agree that the US is in relative decline and about the rise of multilateral pragmatism in diplomacy. Nonetheless, I question the thesis that state power is eroding. The state remains as strong as ever, and far stronger than their equivalents a hundred years ago. Several European nations take in more than 50% of their GDP in taxes. This rate in the distant past was only reached during times of total war, e.g. WW2. States are most certainly not “challenged” by either global organizations (which are simply assemblies of states where they can seek concensus), militias (which have always existed) or NGO’s (which operate under statal jurisdictions).
Putin has become leader of United Russia, in addition to being the Prime Minister. Sean’s Russia Blog already has an excellent analysis in Gensek Putin (which also features a nice little demographics discussion in which my posts on the matter were mentioned).
That of course raises the issue of whether a nothing party like United Russia will actually give Putin something. As Konstantin Sonin noted in the Moscow Times, leading United Russia wouldn’t necessarily give Putin any guarantee over controlling the government. “The party has nothing to offer Putin in his struggle for power,” says Sonin…
The chairman position gives Putin virtually unlimited power within UR. Putin will have the power to appoint party leaders and suspend their powers, and override any party decision expect for those adopted at congresses. His removal is only possible with a 2/3 congressional vote.
If Putin can be taken at his word, he has plans for United Russia. In his address to the Congress he stated that the party of Power needed to “reform itself become more open for discussion and for taking into account the opinion of the electorate, it must be de-bureaucratized completely, cleared of casual people pursuing exclusively their own material gains.” Look out, there’s a new sheriff in town.
Plans have already been set in motion for the recognition of internal factions. Three “clubs” have been created within United Russia to represent its right, center, and left. There is the Center of Social Conservative Policy, headed by Andrei Isaev, the liberal-conservative “November 4th” club led by Vladimir Pligin, and the State-patriotic club led by Irina Yarovaya. Whether these clubs will actually mean anything in terms of inter-party dialog remains to be seen.
Putin’s chief task, if he chooses to take it, will be to rid the party of what he calls “corrupt people.” A task easier said than done. Historically, attempts to clean up party corruption have horribly failed. Often the anti-bureaucratic campaigns, purges, and even arrests within the Communist Party created more corruption. And like the Communist Party of the past, United Russia seems allergic to any real cracking down on its corrupt members. Last week, the United Russia dominated Duma rejected a bill which would require deputies to declare the incomes and property of their relatives up to three years after leaving office. Hiding wealth and property in the names of family members is a common, albeit crude way, of hiding corruption.
Basically, if Putin actually decides to lead United Russia, he’s going to have his hands full. Just because he is the almighty Putin doesn’t mean he will be successful.
Michael Averko has an excellent article in American Chronicle, Ukraine and “Russophobia” Uncensored, which covers more on the Annals of Western Hypocrisy (which goes on and on, World and Time without End). I’ve quoted the first three paragraphs:
Since the Soviet breakup, Ukraine has been geo-politically spun in two ways. When Ukraine’s less Russia friendly side appears to have enhanced its stature, there is an increased yearning to drive Ukraine away from Russia as much as possible. When Ukraine’s more Russia friendly grouping seems strengthened, there is greater talk of mutual respect for the two Ukrainian ways of viewing Russia. Another Ukrainian perspective falls somewhere in between the two.
On NATO expansion, “the will of the people”, takes a back seat for the Russia unfriendly crowd. The Orange Ukrainian government’s desire to have Ukraine in NATO has consistently run contrary to the majority of its citizenry. The explanations for this unpopularity include a not so well informed Ukrainian public, caught in a Cold War time warp.
In comparison, there is little second guessing of polls showing that most Ukrainian citizens have a positive attitude on their country joining the European Union (EU). For some, Ukrainians are ignorant when stating apprehension about NATO and knowledgeable upon agreeing with the anti-Russian consensus; albeit for not always the same reason.
Sean’s Russia Blog has comprehensive coverage of the Putin / Kabaeva rumors. Also a story about the hobbies of Russia’s nanotechnologists, e.g. building marchhead-sized chess sets.
Demographic stats from Rosstat have come out for Jan/Feb 2008. While the birth rate increased by 11.3%, so did the death rate by 2.6%, reaching 15.8 / 1000 from 15.4 / 1000 in 2007. Seems that January was not an anomaly – the rapid improvements seen since 2005 have petered out, at least temporarily. But this is not totally unexpected, however. As I noted in my demographics posts, there is a very close correlation between mortality and the alcohol/food price ratio. Overall inflation in Jan-Feb was 3.5%, food price inflation was 3.6%; but the price of alcohol increased by 1.9%. The alcohol/food price ratio has fallen further, perhaps to its lowest ever historical level. In other demographic news, in 2006 there were 1.6mn abortions in Russia, hugely down from the 1990′s but still 2 to 3 times higher per capita than in the West.
Finally a few public opinion polls. In February 2008, PEW released figures that showed 6 3% of Russians preferred a strong leader over democracy, down from 70% and 21% respectively in 2002, but a lot higher than in 1991, when a majority (51%) favored a democracy over a strong leader (39%). 74% would rather have a strong economy, while only 15% would like a good democracy. Ukraine, Bulgaria and even Poland show similar figures. In another rather interesting result, half of Russians agreed with the statement that ‘most people in society are trustworthy’, which is higher than the average for Eastern Europe and about average for Western Europe.
59% of Russians (almost certainly correctly) say there is no life on Mars, while 26% disagree. 49% of them believe that there’ll be a human on Mars and 59% think there’ll be a lunar base within the next 50 years. (Russia, like the US and China, has tentative plans for both enterprises). A new ‘Space Competitiveness Index‘ (whatever that means) has been compiled, in which Russia takes third place behind the US and Europe. China is fourth.
(Republished from Sublime Oblivion by permission of author or representative)
 
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The conventional wisdom seems to be that Russia, due to its strong macroeconomic fundamentals and relative isolation from the world economy, will weather the oncoming credit crisis well. In fact, Kudrin (the Finance Minister) suggested ‘Russia and other countries with large gold and currency reserves can…can support the global economy by flexing the financial might of their sovereign funds’, insisting that Russia remains a ‘haven’ of stability amid global financial crisis. This is a sentiment shared by Russia’s senior executives, 73% of whom are ‘very confident’ of revenue growth in 2008 (up from 35% last year). CEO’s from Brazil (63%), India (90%) and China (73%) also feel confident, in contrast to most Western businesspeople, e.g. the US (36%), Japan (31%) and Italy (19%) – who are much less confident than a year ago.

Flextronics and Peugeot plan to build plants in Russia, while Russia is going to build a railway in Saudi Arabia and a hydropower station in Tajikistan. The Russian search engine Yandex enters the world’s top ten, with 566 million searches, or 0.9% of the world’s search requests. Russia, Kazakhstan and Belarus are to expand the role of the Eurasian Economic Community by signing nine treaties to draw up a regulatory framework for the Customs Union.

Moscow State University Buys Russia’s First IBM Blue Gene Supercomputer – to be used for fundamental research in nanotechnology, new materials and life sciences. It can run at 27.8 trillion operations per second (Tflop/s). This means Russia will get a second supercomputer in the world’s top 50.

Whatever you thought of Russia’s 2007 parliamentary elections, one unqualifiably good thing is that there are now 62 women (13.8%) in the Duma out of 450, up from 9.8% in the 2003 Duma. (For comparison, Sweden is at 47.3%, US is at 15.2% and France is at 12.2%). This means Russia moved up from joint-95th to 75th in the Women in National Parliaments metric. It also means Russia will do better on rankings like the Global Gender Gap Report, where Russia is 45th – mostly because of low female participation in politics.

Medvedev made some soothing noises, saying that Russia “is building a democracy in which representatives of state power must diligently fulfill the obligations that they have taken upon themselves”, emphasizing the need for a stable democracy with a functioning civil society and guarantees of the rule of law and asserting the world has nothing to fear from Russia.

Lavrov had his annual press conference, in which he reaffirmed Moscow’s position on Kosovo, the British Council, Abkhazia and South Ossetia, NATO and warned some Baltic countries not to glorify Nazism.

Talks of Cold War with Russia is ‘nonsense’: Rice – I quite agree.

Russia-Backed Think Tank To Study Western Democracy – Good.

More tidbits on the missile defence front. Both Slovakia and the denizens of the Polish town where the missile interceptor station is to be based are against missile defence. Meanwhile, Russia’s military chief of staff Yuri Baluyevsky has said Russia is prepared to use pre-emptive nuclear force to defend its national interests – repeating military doctrines assumed in the early 1990′s. (Perhaps this is why NATO has chosen to preserve its self-assumed right to initiate a first strike.) But bearing in mind what we wrote in our second News post, this is an entirely predictable posture.

Ukraine’s President Viktor Yushchenko, Prime Minister Yulia Tymoshenko, and Parliament Chairman Arseny Yatsenyuk made public a joint letter to NATO Secretary General Jaap de Hoop Scheffer, declaring Ukraine’s readiness to advance to a Membership Action Plan with NATO and requesting a decision to that end by the Alliance at its Bucharest summit in early April. Considering ‘support remains confined to some 20% of the overall electorate’, while over half are against joining NATO, it is not surprising there have already been anti-NATO protests in the capital (which is actually strongly pro-Tymoshenko). The Party of Regions and the Communists are adamantly against joining NATO.

RAF alert as Russia stages huge naval exercise in Bay of Biscay – Russia holds its largest naval exercise since Soviet times with France.

Putin hails setting up of 15 regional high-tech clinics in Russia

In Russia, Space Exploration Takes Back Seat to GPS – because apparently Glonass is still plagued by inaccuracy and incomplete coverage. I don’t think that’s a reason to slow down on other projects, though.

Putin: the brutal despot who is dragging the West into a new Cold War – at least according to crazed Russophobe hack Edward Lucas. I give him his richly deserved comeuppance in Comments.

McCain appoints Putin ‘President of Germany’ – a Bushism from another crazed Russophobe.

Gay Parade in Moscow planned for May – there was a discussion on comparative gay rights in Latvia and Russia between pēteris cedriņš and stalker (me) here.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Russian moves to ban tobacco advertising

MOSCOW, January 10 (RIA Novosti) – The Russian government has decided to completely ban tobacco advertizing, by signing up to a World Health Organization anti-smoking convention.

In its first session of the year, the government approved a draft law on joining the WHO Framework Convention on Tobacco Control (FCTC), which stipulates a ban on advertizing tobacco products.

The FCTC requires parties “in accordance with their respective constitution and constitutional principles, to undertake a comprehensive ban on all tobacco advertising, promotion and sponsorship within five years of the WHO FCTC’s entry into force for that Party.”

About time, considering that 70% of men and 30% of women smoke in Russia, one of the highest rates in the world, and that 300,000 people die from smoking every year in Russia.


India could become largest Kamaz truck maker outside Russia - illustrates the recent phenomenom of how large well-capitalised emerging market companies are starting to branch out geographically – not just to the West (as with the highly publicised merger between Mittal Steel and Arcelor in 2006), but to each other.

Russia, Greece, Bulgaria initial Balkan pipeline project co. deal – another blow against European energy independence.

Putin appoints ‘nationalist’ Rogozin as Russia’s NATO envoy – lol. Talk about rubbing salt into wounds.

Russia’s first space launch of 2008 scheduled for January 28 – Russia’s space industry has not been dormant since the fall of the Soviet Union. Indeed, in the last few years it has embarked on a number of ambitious objectives. These include the reactivation of GLONASS (equivalent of the GPS), numerous scientific projects (Spektr, Radioastron, Koronas-Foton, Moon-Globe and Rezonans), the upgrade of its Soyuz space vehicles and development of the Kliper reusable space shuttle and plans to build a lunar station and put a human on Mars within a generation. And Roskosmos manages to do it with about 1/20th of NASA’s budget. This all calls for a future Editorial.

New serial Tu-160 Blackjack bomber undergoes flight test, Russia to have 50 silo-based Topol-M ICBM systems by end of 2008 – which goes to show the strategic arms industry isn’t idle now either. Seems like the US will have to do without nuclear primacy.

Drunken Russian plane passenger detained after hijack attempt – some things never change, though.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Anatoly Karlin
About Anatoly Karlin

I am a blogger, thinker, and businessman in the SF Bay Area. I’m originally from Russia, spent many years in Britain, and studied at U.C. Berkeley.

One of my tenets is that ideologies tend to suck. As such, I hesitate about attaching labels to myself. That said, if it’s really necessary, I suppose “liberal-conservative neoreactionary” would be close enough.

Though I consider myself part of the Orthodox Church, my philosophy and spiritual views are more influenced by digital physics, Gnosticism, and Russian cosmism than anything specifically Judeo-Christian.