Monthly Archives: April 2014

Dangerous Chess Match: Obama Versus Putin

Art for Thursday Review by Rob Shields

Art for Thursday Review by Rob Shields

By R. Alan Clanton Thursday Review editor

(Originally published March 25, 2014): Math is punishment. Subtract one, and the G8 is now the G7.

After a preliminary meeting this week, the leaders of the industrialized nations voted unanimously to give the boot to Vladimir Putin, excluding him from the roundtable meeting and banning Russia from future economic talks—indefinitely, that is, unless he can change his aggressive behavior. The G7 also voted to scuttle their plans to hold their next scheduled summit in the newly remodeled and upgraded Sochi, the recent home of the $51 billion Olympic Games. They will meet instead in Brussels in June.

Many might see the decision by the G7 leaders as mostly symbolic, but the economic conference draws large entourages, hundreds of participants, and thousands of writers, reporters and television cameras. The economic impact on Sochi would be like a mini Olympics. And kicking Putin out of the high-profile conference—about as symbolic an act as one can implement—does carry a sting: Putin, like most bullies and autocrats, craves respect—and respectability.

Still, some have complained that the current round of sanctions imposed on the Kremlin will have only marginal impact on Putin’s Russia, a country which has taken a dark turn of late—reincarnating itself in a style and methodology not seen since the end of the Cold War and perhaps even the pre-Gorbachev era.

But short of sending in NATO troops, U.S. Marines and Army Rangers, what else can be done? Lots of things, as it turns out.

Indeed, one of the keys to pressuring Vladimir Putin to back off of any further territorial incursions into the Ukraine may be his close associations with several Russian billionaires.
After the Russian invasion and annexation of Crimea—the Black Sea peninsula which is home to part of the Russian fleet—U.S. President Barack Obama hit Russia with a long list of economic and travel sanctions. Some have said that those sanctions are about as tough as any such program of punishment can get, cutting deeply into an already suffering Russian economy. Others have said that Obama’s sanctions have not gone far enough, and that Putin has been emboldened to act unilaterally and aggressively by a weak, rudderless U.S. foreign policy—an argument made by plenty of U.S. conservatives for weeks now.

In either case, Obama has all but ruled out direct military action (though he has not ruled out the use of technologies like AWACs or surveillance drones which might assist the Ukrainian forces in a potential military showdown). It is unlikely as well that NATO will intervene since few European Union member states want to get into a dust-up with Putin at a time when so many of their economies are dependent on oil and gas supplies from Russia.

But with military options off the table, for now, that leaves a long and sometimes complex list of sanctions and other market and business moves. And a few experts in the business world have said that putting the squeeze on Putin’s billionaire pals—some of whom have checkered pasts and few scruples—will have the immediate effect of punishing Putin where it hurts the most: the bank accounts of the oligarchs and oil chieftains.

One such kingpin is Dmitry Firtash, a Ukrainian oil billionaire with a long rap sheet of charges, including bribery (in numerous countries), bank fraud, coercion, price-rigging and extortion. Firtash is not a driller of oil or a producer of gas, but a middleman whose principal profits came from buying and reselling, often using extra-legal methods, and frequently with little or no oversight or adherence to laws or regulations. Firtash was arrested in Vienna in early March (the Viennese had warrants and papers from the United States, and were cooperating with American authorities in locating Firtash) on charges of bribery in a variety of jurisdictions. Firtash’s main supply client was Gazprom, a Russian energy company known to operate deeply in the shadows of corruption. And Gazprom is a company with close political links to Putin.

The U.S. and its partners in the west hope that by squeezing Putin’s network of oil and gas associates, they can squeeze him politically. He may not ever concede wrongdoing in his aggressions in Crimea—indeed some think that the issue of Crimea’s referendum and subsequent annexation by Russia is a closed deal now—but the harshest business sanctions, those which hurt the billionaires, may give him serious second thoughts about moving troops into other parts of the Ukraine.

The Kremlin has consistently said it is all an exercise, but after completing its takeover of Crimea this past week, many military and intelligence analysts believe that those thousands of Russian troops on the move along the perimeter of Ukraine’s eastern borders are there for more than mere in-the-field training. Many Ukrainians, especially in the east, are fearful that Putin’s intention is to strike deeply into the heart of the Ukraine, perhaps sending troops as far west as the Dnieper River.

Pro-Russian rallies in several major cities and increasing talk among the pro-Kremlin press have increased the idea of a general referendum to allow Ukrainians to “reunite” with Russia. Whether there are elections or not, any major public disturbances or civil unrest will surely give Putin the excuse he needs for a wider invasion. And a pro-Russia vote, if successful even by a small percentage, will surely embolden Russia to act unilaterally. This raises the specter of a divided Ukraine—the western half of the country aligned with the European Union, the eastern half folded into Russia and under Kremlin authority. Cultural and linguistic differences may also fuel such an outcome, just as it did in Crimea, where over half of the people speak Russian as their native language.

Either way, Obama and his partners among the remaining G8—which include the United Kingdom, France, Italy, Germany, Canada and Japan—hope that squeezing Putin’s economy and denting the profits of his partners will send Putin the message that his aggressions in the Ukraine must stop. Economic growth trumps territorial designs.

According to Bloomberg, since January investors worldwide have already pulled about $5.5 billion from the economy by walking away from Russian stocks and bonds. The U.S. has also asked banks to freeze assets worth many more billions, and the European Union has blacklisted even more Russian individuals than those on the American list. Among the elite of Russian billionaires are businessmen who freely—and frequently—travel from Moscow to a variety of European and worldwide destinations, both on business and for pleasure. Limiting their travel may seem mostly a matter of convenience, but it can create serious hindrance in their need for face-to-face business activities.

The U.S. and its European partners can also target other heavy-hitters among the Russian elite, including Roman Abramovich, another oil billionaire who happens to own soccer teams in Europe. Much of Abramovich’s wealth came from the sale of part of his oil and gas empire to Gazprom in the aught years, and he used some of that cash to buy soccer teams in Europe.
One of Russia’s wealthiest industrialists is Alisher Usmanov, another close ally of Putin, who has a penchant for technology, computers and social media. Until recently he owned large blocks of stock in Facebook and Apple (most of which he sold between 2013 and 2014). Usmanov may be worth well over $17 billion, according to some analysts.

Both are on the list of those for whom sanctions are targeted, and both have shady connections to Putin and the top Kremlin brass. Properly applied, the sanctions will put the squeeze on both billionaires and their extended trading partners, and, in theory, Putin himself.

Many U.S. and British conservatives say the steps are too weak and will have little effect on the stubborn, coldly calculating Putin, the ex-KGB officer and icewater-for-blood apparatchik. Fox News has dubbed President Obama’s list of sanctions “double-secret probation,” a line lifted from the movie Animal House. But U.S. and E.U. officials say that the current sanctions are simply the first step in a series of moves designed to ramp up the pressure on Russia. These include broader, heavier forms of economic quarantine.

But in an increasingly interconnected global economy, many market experts fear that if sanctions are taken to the next level—which could include a deeper freeze on assets and a blockade of more banking transactions—the blowback could adversely affect the economies of a dozen European nations, especially if Putin retaliates by limiting gas sales or cutting off oil supplies. Further, even the sanctions aimed squarely at the billionaires might have repercussions in the western economy: punishing Abramovich could adversely affect his soccer holdings in the U.K.; and cutting off Usmanov could greatly limit start-up and investment capital otherwise available to Silicon Valley start-ups and U.S. tech companies.

Putin has plenty of reason to budge over time, especially if the oligarchs get angry with him over the reversals of fortune. On the other hand, Putin places Russia’s prestige and muscle first: he has made it clear he believes the West is interfering in a region which is well within his sphere of influence, militarily and economically. Of all the former Soviet states, the Ukraine is the one which to Putin bears closest kinship with Russia. Putin has thus far proven intolerant of any moves to westernize the great breadbasket region, east or west of the Dnieper.

In the meantime the world watches as more Russian troops move en masse toward the border between Russia and the Ukraine. If sanctions are to work, their effects had better be felt by Putin soon. Otherwise when the G7 meets in June, the roundtable talk may be of war, not the engine of peacetime economies.

Related Thursday Review articles:
Rebirth of the Cold War?; R. Alan Clanton; Thursday Review; March 23, 2014.
Good Putin, Bad Putin; R. Alan Clanton; Thursday Review; March 11, 2014.

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Rebirth of the Cold War?

Art by Rob SHields

Art by Rob Shields

By R. Alan Clanton Thursday Review editor

Published Sunday, March 23, 2014: Events in and around the Ukraine have been moving swiftly and dangerously: President Barack Obama has slapped a long list of sanctions on Russia; Putin has retorted with his own list of punishments; the Crimea has now been almost entirely annexed by Russia; and fears of a wider invasion by Kremlin troops now seem prudent, especially when one looks at the huge number of Russian troops now deployed along the Ukrainian border.

Have the bad old days of the Cold War returned?

Foreign policy challenges often come as surprises. As we mentioned in our article ten days ago, President Barack Obama was not expecting a nasty confrontation between Russia and the U.S. to be anywhere on the list of Top 20 International Crises in his second term.

A complete and orderly withdrawal of U.S. troops from Afghanistan surely topped that list. Also on the agenda: ticklish and tricky negotiations with Iran over its nuclear program; vigilance and watchfulness as the young Kim Jong-un continues to assert himself, in sometimes dangerous ways, in his seat of total power in North Korea; new territorial tensions between China and Japan; instability in Iraq as the country continues to devolve into sectarian violence and fragmentation; and political upheaval and stress in Turkey, Egypt and a half dozen other countries; a bloody civil war in Syria, now in its fourth year, which has become arguably the most grave humanitarian crisis since the African wars and famines of decades past—and civil war now spilling over across borders in Lebanon, Turkey and Jordon.

Those international challenges would make for a full list for any president’s foreign policy agenda. President Obama did not expect—nor did he want—a showdown with Russia, especially the sort of dustup that harkens to the Cold War and an age of stone-faced Soviet premiers rolling in the tanks and armored personnel carriers under the guise of preposterous lies and contrivances.

That the Russian invasion and annexation of Crimea followed so closely on the heels of an international and unifying event like the Olympics is an ironic indication of how quickly things can change. One week Vladimir Putin is basking in the light and glow of a $56 billion celebration of human achievement, and the universal language of sports, even allowing himself to smile a little; the next week, political chaos results in the ousting of Viktor Yanukovych, a loutish strongman who spent most of his energy diverting the Ukraine’s wealth into his various bank accounts. Suitably free of their former warden (he was elected in a process which most international observers say was rigged, KGB-style), Ukrainians celebrated by opting for democracy, European-style.

The specter of a western-leaning Ukraine was an intolerable to Putin, who immediately set in motion military options. Within a week, Russian troops had seized Crimea, sealed off its borders, and sent in uniformed henchmen and thugs to take control of key locations along the interior perimeter of the Ukraine. In Crimea, Ukrainian radio and TV was jammed or shut down, replaced overnight by broadcasts from Moscow.

A week later, the Crimean people—the majority of whom speak Russian as their first language—voted by huge margins to cede from Ukraine and rejoin their kindred Russia, though western experts seem to differ sharply on whether the election was fair or rigged. That referendum was an irrelevant point, say others, who point out that the vote and the subsequent annexation of the Crimea, was nevertheless an illegal act under international law and the U.N. charter.

At the worst moment of the crisis, while Russian troops surrounded and sealed off Ukrainian military bases and posts, the entire world was briefly transported back in time as superpowers flexed muscles, rattled swords, traded insults and accusations, and generally weighed all military options. There was talk of massive military maneuvers, fleets were redirected, and a few hearty (if not hyperbolic) souls began reminding us just how many nukes Putin has in his arsenal. The Cold War, it seemed, had returned like a bad rerun, and the crisis sidelined other international issues.

Last week, Putin said that he has no further territorial ambitions in the Ukraine, but over that same period he had steadily increased the number of troops along the border between Russia and Ukraine. He and his spokesmen have called the troop movement an exercise, but sporadic shooting incidents along that frontier have caused many military analysts to question his sincerity on that point. There is widespread nervousness that Russian troops may yet cross the border and move into the Ukraine east of the Dnieper River.

Russian troops have been slowly but systematically taking over military facilities in Crimea, sometimes without violence, but occasionally with force—as in this weekend’s takeover of Belbek Air Force Base which resulted in gunfire and several serious injuries. After a brief shootout, the Ukrainian commander ordered his men to surrender their weapons and cede the base to the Russian troops. Save for a few tiny pockets of resistance, Russia’s annexation of Crimea is virtually complete.

Originally, Obama acknowledged that U.S. military options are limited, at best, and that the go-to move is sanctions against Russia. Late last week the President conceded that the United States would not likely go to war with Russia over the crisis, though some NATO options remained under discussion. In a near unanimous vote (Russia dissented and vetoed the move), the United Nations Security Council called the invasion and occupation an illegal act of aggression. President Obama rolled out the sanctions—harsh, by any economic measure.

And like the old Soviet premiers of the past, Putin has turned it into a zero sum game, tit-for-tat. He too will impose sanctions. He too will call for the expression of international outrage in what he says is a clear overreach by the U.S. and western powers into his backyard. He too will limit foreign travel by Americans and place a noose around U.S. business interests in Moscow (though it was unclear how banning John McCain, John Boehner or Harry Reid from travel to Russia would have an equivalent effect).

Histrionics and media posturing aside, Putin believes that the Ukraine is well within his sphere of influence. Because of its special historical connection and geographic proximity to Russia, the great East European breadbasket and nursery of technology is a de facto partner and brotherly homeland to Russia. But like any familial relationship, it gets complicated. (See: Good Putin, Bad Putin; Thursday Review; March 11, 2014).

About 60% of the Crimean people speak Russian as their first language, and a significant number of those regard themselves as ethnically Russian—a cultural connection which dates back centuries. But north of the Crimean peninsula, most Ukrainians, especially those west of the Dnieper, self-identify as not only Ukrainian, but European.

Some in Crimea, of a decidedly older generation, have suggested that what the world is witnessing now is merely a violent manifestation of an unresolved issue dating back to the mid-1950s. Back then, Soviet premier Nikita Khrushchev transferred Crimea’s political mechanisms from the larger Soviet Republic to the Ukrainian republic. That decision was based on logistics and geography, and was made in the context of a larger Soviet empire unable to conceive of a day in which its larger federation would fragment and shatter. In other words, there was little military risk to the Kremlin if those key warm water naval bases were part of one republic or another.

After the fall of communism and the break-up of the Soviet Union, the Ukraine became the largest European nation west of Russia itself. But the peninsular of Crimea—a virtual island connected to the mainland by a thin strip of land—remained of critical strategic importance to Russia, principally for those massive naval facilities at Sevastopol. When the political stress fractures began last fall in Kiev, the turmoil set in motion an almost certain collision between a pro-democracy, pro-European movement, easy to understand and support from the view of the West, and Putin’s stubborn unwillingness to ever let go of a key component of his military assets, or ceding a region he considers in Russia’s sphere of influence.

Further muddying the waters is the distinct possibility that pro-Russian Ukrainians east of the Dnieper may call for their own referendum to decide whether or not to break away from Ukraine and join Russia. In Donetsk, a crowd of 5000 rallied in support of having the same option of self-determination as Crimea, and similarly swelling masses have gathered in Kharkov. Despite the strong evidence that Moscow may be engineering such events, this nevertheless puts the U.S., U.K. and other democracies in the awkward position of explaining how the western powers could—only a month ago—support the brave efforts of a pro-Democracy movement in Kiev, but now frown so uniformly on the desire of Russian-speaking people east of the Dnieper to “reunite” with their Russian kin.

The real danger is that Putin can use the political stress and disorder as a pretext for more military incursions, if not—as some Ukrainians suspect—as an outright excuse for a full-scale invasion. Considering the tens of thousands of Russian troops now massed along the border, an invasion seems an easy next step for Putin.

Street demonstrations, like the ones the world watched in Kiev last month, could very easily escalate into violence—giving Putin his opportunity to roll in the tanks to restore order. Putin has all along said that several months of protests and chaos in Kiev were the result of untoward western influence, and Russia has consistently characterized Yanukovych’s ouster as a coup by hooligans and thugs. Putin may soon have the excuse he needs to turn crowds and street chaos to his advantage. Even if the protests escalate peacefully, the Kremlin can point to the swelling crowds as prima face evidence of the desire of many Ukrainians to not be a part of any merger into the EU or NATO. And large enough demonstrations may be enough for Putin to simply annex everything east of the Dnieper.

Meanwhile, the Obama administration will use whatever leverage it can muster to punish Putin for his actions. Sanctions have so far included hitting big Moscow banks with close ties to Putin and freezing some business interests among Putin’s heavy-hitter billionaire friends as a start. Putting the squeeze on the oligarchs will inevitably squeeze Putin, so the thinking goes. A few of Putin’s billionaire pals, such as Gennady Timchenko and Arkady Rotenberg, have little tolerance for frozen funds or lost profits potential.

Further bad news for Putin could come in the form of deeper recession if the sanctions persist and dig deep enough into Russia markets. The Russian stock index has plummeted since the beginning of the year, and experts predict it may go lower still, and the ruble—which took a pounding on world markets last week—currently ranks above only the last-place Argentine currency for performance against the dollar.

But a few U.S. market analysts point out that this action may just as easily affect U.S. and western commerce as well, especially since many of those transactions and deals include wide overlap between firms in the U.S., U.K., and dozens of other nations. Wall Street and several other world markets have reacted nervously as the full impact of sanctions has been explored, and it is not yet clear how much blowback from the economic measures will hit U.S. markets.

The European Union has also imposed sanctions, but the EU’s version is lighter and less aggressive than the American program. Many member nations of the EU have business relationships which are deeply interconnected with Russia and Russian companies. And Putin can also use his vast oil and gas supplies as a powerful tool of persuasion against those European nations who might otherwise be inclined to support the U.S. position.

Though the door does not swing entirely both ways, Moscow has some leverage of its own, and its effects can be swift. Whether he invades eastern Ukraine or not, Putin can put the squeeze on what remains of the Ukraine though measures which do not involve guns or tanks. This can be accomplished easily at first, then, using stronger measures over the coming weeks and months as Moscow limits or cuts off oil and gas supplies.

As he did in Crimea, Putin can impose visa restrictions and travel limitations between Kiev and Russia. He can also expand this by cutting off airport access for flights with passengers changing planes in Moscow—going to or coming from Ukraine. Putin can also call in his markers—demanding immediate repayment of all Russian loans to Ukrainian business, and his own program of sweeping sanctions against western Ukraine could chill an economy still struggling out of the last deep recession. Adding a surreal threat to the mix is Russia’s hint that it may require a snap repayment of nearly $20 billion in debts leftover from before the break-up of the Soviet Union, debts largely forgotten if not assumed forgiven, but now back on the table as the threats fly back and forth.

Finally, Putin’s hackers trump Ukrainian hackers. Moscow can approve and even facilitate cyber war on Ukrainian businesses, journalistic outlets, government agencies and operations—even its military units. The Ukraine is a hotbed of technology and, some have argued, a haven for cyber operatives; but Russia has the cyber clout to cause far more damage. The costs of an all-out Russian campaign of cyber war upon Ukraine could be severe, and could easily disrupt any day-to-day economic progress.

But the tensions between the U.S. and Russia may also lead to disruption in several other areas of international concern. In retaliation for the American sanctions, Putin has declared “asymmetrical” war on the U.S., vowing to undercut critical negotiations on Iran and Syria, and intimating that Russia will be less willing to cooperate with the U.S. on other potential flashpoints, like North Korea, China or the Middle East. And as the Syrian meltdown continues—its humanitarian problems now acute, and its violence now threatening the stability of its neighbors in all directions—Russian solidarity, or at least cooperation, was crucial in any internationally agreed upon solution.

The Ukrainian crisis has a spillover effect into at least four of the Obama administration’s most urgent foreign policy objectives, and may prove to be a devastating setback for the Iranian negotiations.

U.S. conservatives see the current spiral of events as par for the course, and suggest that a rudderless Obama foreign policy has been—all along—an invitation for the coldly calculating and opportunistic Putin to seize the moment. Some now fear Putin sees little reason not to invade the Ukraine since there is virtually no chance of NATO or U.S. intervention, and more than a few conservatives have pointed to the irony of Secretary of State John Kerry, who once protested the Vietnam war by turning in his medals, now tossing empty threats at Vladimir Putin, the former KGB officer and station chief.

Western liberals and pacifists shudder at the thought of a shooting war over the Ukraine, and indeed there are few if any good outcomes to direct military intervention in the one region of the world where the travel time of Russian nukes can be measured in seconds, not minutes. Obama can deploy drones and other weapons of dazzling technology, perhaps as a means of assisting the Ukrainians in any direct fight with Russian troops. Though he is unlikely to use them, Putin has weapons of terrible power at his disposal—many of them, ironically, handed to the Kremlin when the Ukraine was given its independence from the Soviet Union after the fall of communism and the end of the Cold War.

Straddling the footprint of both views is the reality that some strands of Cold War DNA remain embedded in our world, at least for now.

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