The ISCIP Analyst

Volume XV, Number 5 (20 November 2008)

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Volume I
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No. 1 (6 November 1996)

Russian Federation

Executive Branch by Susan J. Cavan

Domestic Issues & Legislative Branch by Rose Monacelli

Security Services by Fabian Adami

Armed Forces by Lt Col Erik Rundquist

Foreign Relations by Shaun Barnes

Energy Politics by Creelea Henderson


Caucasus by Robyn Angley

Central Asia by Monika Shepherd

Western Regions by Tammy Lynch




Russia's multipolar disorder
At several recent international events, Russian President Dmitri Medvedev has been echoing a familiar argument as a palliative to world problems, be they financial, security-related, or trade issues:  An international system with one, sole superpower at the apex is an inherently unstable system; a multipolar world, with several strong leadership centers somehow will provide a more stable, and therefore more desirable, configuration for international relations.  Give Russia credit where it is due – they are putting their words into action, at least domestically.

As if to prove the instability inherent in American leadership in the world, Russia has been acting in contrary fashion and then attempting to justify its actions as a result of or response to uni-polar world affairs.  Georgia represents a worst case scenario of this behavior:  The Russian argument proceeds from the contentious assumptions that American support for NATO enlargement, to include Georgia, represents a threat to Russia's "privileged interests" in its neighbors, (1) and simultaneously that the American-led support for Kosovo, and particularly Kosovar independence, undermined the traditional supremacy of sovereignty in international relations.   According to Russia's envoy to NATO, Dmitri Rogozin, "It is not possible to accept Kosovo's independence and to meaninglessly reiterate Georgia's territorial integrity."  (2)  The Russian extension of this argument holds that Russia is within its rights to unilaterally label an action on the territory of one of its neighbors as "genocide," and intervene militarily, wresting provinces from its neighbor and destroying its infrastructure.  Russia also asserted its desire to oust (or even kill) the elected leader of Georgia, a verbal threat that has not been carried out…yet. (3) 

Russia's rationale for these actions places the responsibility for its own behavior at the feet of western, particularly American, governments:  Western interference in former Soviet republics in the guise of furthering their democratic development and encouraging their aspirations to join NATO represents the dark side of post-Cold War international uni-polarity, which seeks to isolate Russia from its traditionally "close" relationships with its neighboring states.   Russia has been able to attribute a vast array of international "upsets" to the dangers of unipolarity, as evidenced by Medvedev's recent comments on Georgia: "When irresponsible adventurist actions on the part of a regime in a small country thoroughly disrupt the global situation, what other proof is needed that the international security framework based on the monopolar world concept is faulty?"   (4)  Theoretically, multi-polarity would allow Russia to reestablish its historical ties and to act with impunity towards its neighbors.   In this way, Russian actions in Georgia are both a result of an American-dominated uni-polar world (and condemned in such a system), and likewise would be the result of a multi-polar world.  However, in a multi-polar system, Russia theoretically would be acknowledged as a rightful hegemon in its own Eurasian center.  Either way, Russia's border states pay the price of Russian ambition, pride, and, once again, history.

Domestically, Russia's current fixation with multi-polarity has played out for nearly a year now as President Medvedev and Prime Minister Putin work out a diarchical power system, which obfuscates the actual seat of power.  The guessing game surrounding who would succeed Putin, a game which culminated in the two main candidates both being named First Deputy Prime Ministers in the Russian government, has now morphed into a debate over the relative status of the country's president vis à vis the prime minister.   Medvedev's recent proposal to amend the constitution and extend the terms of both the president and the members of parliament has not fostered debate about the need for longer terms of service or periods between elections, nor even sparked a conversation about the ramifications of amending the constitution (something not done during Putin's presidency), but rather it has re-ignited the question of Putin's return to the Kremlin.  Medvedev's short interregnum has been hit with a self-inflicted wound to his legitimacy, as he appears more and more as a seat warmer for his predecessor's next appearance in the presidential offices.

Putin himself does little to allay suspicions that he still is ruling the country, if not from the Kremlin itself, for now.  From his actions during the Russian invasion of Georgia, to his televised performance instructing the president how to behave (See previous Analysts), Putin has made clear that his decisions matter.  In a widely-reported incident a few days after his birthday, Putin also demonstrated that when he called, it was wise to come running.  "He called Russian journalists to his country home late Thursday without telling them why. Past midnight, after asking them "not to make noise, make a clatter or squeal," Putin ushered the curious journalists into the room where the tiger cub was waiting." (5) This story of the rare Ussuri tiger cub that Putin received as a birthday present ran through numerous international media outlets, but is it not a strange element to the story that Putin had reporters called to his dacha late in the evening, made them wait around until midnight, and then showed them a birthday gift he had received (by some reports days before)?  It sounds less like the action of a serious head of government in the midst of a financial crisis, then a brash and erratic authoritarian leader, making a point that he calls all the shots.  This is not the sort of governance once hoped for Russia.  Seventeen years after the emergence of the Russian Federation from the wake of the Soviet state, the Russian political system remains overly reliant on personalities, patronage tails, and clan loyalties.  As one Russian analyst noted of the current situation: "We are living in a political system in which the formal institutions are a screen, and on the whole have no connection with real politics, while real politics are defined by interpersonal relations that are absolutely hidden from our view.
And this process is even gradually acquiring a somewhat grotesque character -- the closed and inexplicable nature of decisions, and even a lack of clarity as to who rules the country.
It is unclear whether this comedy will continue for long, and it is unclear also whether society will long continue to tolerate these behind-the-scenes processes …." (6)

Perhaps, in time, the benefits of “multi-polarity” in Russia's domestic affairs will become clear enough to the rest of the world that there will be movement to imitate the model on a broader scale.  In the meantime, Russia has a lot of work to do, both at home and abroad, before its vision is palatable to a wider audience.

Source Notes:
(1) President Medvedev recently defined countries where Russia has "privileged interests" as follows:  "These are countries that are very important to us, countries with which we have been living side by side for decades, centuries, now, and with which we share the same roots.  Of course, I am referring to the nations that were part of the USSR, part of other state formations previously, countries where Russian is spoken, and that have a similar economic system and share much in terms of culture." "Meeting with members of the Council on Foreign Relations," 16 Nov 08, Kremlin website via
(2) " Russia's NATO envoy compares S Ossetia conflict to NATO operation in Yugoslavia," ITAR-TASS, 15 Aug 08; BBC Monitoring via Lexis-Nexis Academic.
(3) In addition to several contemporaneous comments to the effect that Georgian President Saakashvili should be removed, a recent report from the French President's chief diplomatic adviser confirms the vehemence of Putin's animus regarding Saakashvili, see "Vladimir Putin 'wanted to hang Georgian President Saakashvili by the balls'," The Times Online, 14 Nov 08 via
(4) Medvedev: We plainly saw who our true friends were and who weren't," Izvestia (Moscow issue), No 189, October 9, 2008, p. 1; BBC Monitoring via Lexis-Nexis Academic.
(5) Putin Receives Tiger Cub For His Birthday, Associated Press, 10 Oct 08, 02:51 PM EST; Huffington Post via
(6) "Pundit Says Extending Presidential Term Irrelevant to 'Grotesque' System," Commentary by Dmitri Furman, 19 Nov 08, Agentstvo politicheskikh novostey; via Johnson's Russia List (JRL), 20 Nov 08, 2008-#213.

By Susan J. Cavan (



National Priority Projects update
Since the global financial crisis began in September, the Kremlin has worked to minimize the damage to its currency, the country’s private industry, and its richest citizens.  Just this week, the central bank issued more than 143 billion rubles ($5.23 billion) in collateral-free loans to commercial banks, in order to prevent the banking system from collapsing (1).  It appears that the entire government is focused on preserving the financial stability it has achieved over the past decade, or at least in preserving the illusion that the country continues to operate successfully.  However, while saving the economy has commanded the public’s attention and demanded every possible public resource, other programs have begun to fall by the wayside.  Among the first to go are the social programs that rose out of the country’s financial success during the first half of the decade.

Political stability, economic and technological growth, and raising the quality of life of citizens as indicators of Russia’s modernization and strength were themes employed by Putin throughout his presidency. On September 5, 2005, Putin announced the creation of the Russian Federation’s National Priority Projects, a program aimed at developing Russia’s social welfare by investing the state’s growing economic resources in the development of the public health, education, housing, and agriculture sectors.  These areas were chosen because Putin, the chairman of the supervisory Council for Implementation of the National Priority Projects, noted that they had the most influence over quality of life for individual citizens and in general, “the social health of society.” (2)  At the press conference announcing the Projects’ formation, Putin also explained that they were a “necessary and logical development of our economic course, which we carried out for the previous five years and will carry out further. ... This is a course of investment into the people - into the future of Russia.” (3)

There were several reasons for the implementation of the National Priority Projects.  First, the Kremlin had streamlined and centralized the government at all levels, allowing it to support large-scale government initiatives.  Additionally, Putin had sufficient political clout to implement a widespread social agenda, as well as Russian popular support.   Further, as previously mentioned, an emphasis on social reform and the personal welfare of the Russian people signaled to the world that Russia had been transformed into a modern power with far-reaching goals that extended beyond the drive to ensure its own political and economic survival.  Finally, and perhaps most critically, the state had the financial resources to implement such an agenda. At the time, Russia’s natural resource and commodity-based economy had recovered from the 1997 crisis, and the government was confident that it could fund social programs without inviting inflation. (4)

Outwardly, it appeared that the National Priority Projects had become a genuine national priority. Under the guidance of then-Deputy Prime Minister Medvedev, the program’s de facto coordinator, the government cultivated a caring and benevolent image through the Russian media, where stories of ordinary people who were helped in some way by the Projects became the focus of daily news stories.  To some, including members of the international community, the Kremlin’s “bottom-up” approach to improving the country’s social infrastructure was “Russia’s New Deal,” (5) an indicator that Russia finally had moved beyond both Communism and the rocky post-collapse era.  Others remained skeptical. A 2006 opinion poll showed that 58 percent of those surveyed believed that the National Priority Projects would not significantly impact their lives, and 47 percent thought that the money budgeted for the Project would be misspent. (6) Nevertheless, in 2007, Russia’s Finance Ministry announced that it would increase national funding for the Projects by 12 percent to 263 billion rubles ($10.2 billion).  This constituted a 60 percent increase over 2006 spending, but was barely notable when considering that in the first half of 2007 alone, the national budget was operating with a 1.08 trillion ruble ($41.6 billion) surplus. (7)

Notable was the previously unseen focus on social issues during the 2008 presidential election. Although Putin’s strong support for Medvedev virtually assured his victory, his work with the National Priority Projects, illuminated by more than two years of extensive media coverage of his visits to farms, schools, hospitals and housing projects, did a lot to raise his public profile. (8)

However, despite the fact that Medvedev had campaigned on the promise that the Projects would meet all of their original goals by the end of 2009, (9) since the election he has devoted little time to the social issues that helped make him President.  Instead of simply ignoring the National Priority Projects, the Kremlin has chosen to decrease funding and has announced plans to reclassify the Projects as “government programs” with a longer timeline and more relaxed standards, reigniting concern that the past several years’ focus on social welfare was little more than a short-term plan to garner public support for goals that will never come to fruition. (10)

It is currently difficult to predict whether these fears have merit. Both the President and the Prime Minister maintain that social policy should remain a national priority, and that the Projects “significantly add to solving education, health care, housing and demography issues – the long-term tasks that should become part of Russia’s socio-economic development for the period of up to 2020.” (11) This assertion is supported by the budget: by the end of 2008, the government will have spent approximately 330 billion rubles ($12 billion) on the Projects.

However, funding the projects presents a major cause for concern. In the projected upcoming three-year budget for 2009-2011, the amount of money the State Duma has allocated for the Projects will decrease from 354 billion to 274 billion rubles in 2111. These amounts appear generous, but not in comparison to the 2.73 trillion rubles ($100 million) in state aid that will be distributed this year alone to bail out the flagging Russian oil industry. (12) Again, the vast disparity between the money dedicated to short-term relief and long-term investment indicates that, ultimately, such projects are of little importance to the Kremlin’s larger picture.

Source Notes:
(1) “Russia c. bank issues 143.07 bln roubles in loans to banks,” Reuters India, 17 Nov 08 via  Last accessed 17 November 2008.
(2) “Where was the idea for the national projects born?” National Priority Projects, 16 Mar 06 via Translated from Russian. Last accessed 15 November 2008.
(3) Ibid.
(4) “Why propose such wide-scale social measures now?” National Priority Projects, 16 Mar 06 via Translated from Russian.  Last accessed 15 November 2008.
(5) Jason Bush, “Russia’s New Deal,” Business Week, 29 Mar 07 via Last accessed 15 November 08.
(6) Ibid.
(7) "Russia to raise national project spending 12% to $10 bln in 2007," RIA Novosti, 23 Aug 07 via Last accessed 15 November 2008.
(8) “Russia’s New Deal,” ibid.
(9) Maria Levina, "National Projects under crisis watch," The Moscow Times, 14 Nov 08 via Last accessed 16 November 2008.
(10) Ibid.
(11) Alexei Diakonov, "Vladimir Putin: Social policy should become our chief national priority," RUVR: The Voice of Russia, 28 Feb 08 via Last accessed 15 November 08.
(12) “National Projects under crisis watch,” ibid.

By Rose Monacelli (



Korabelnikov's anniversary message
Early in November, Russia's military intelligence agency (GRU) celebrated its 90th anniversary. The agency's boss, General Valentin Korabelnikov, used the occasion to speak to selected members of the press and to give his views on a number of the strategic problems and challenges facing the country.

The first issue addressed was that of the US's planned ABM shield against Iran, parts of which are to be deployed in Poland and the Czech Republic. Korabelnikov stressed that Russia continues to view the shield as a threat to its interests, and that GRU would take the lead in "tracking the progress of the plans of the United States to deploy missile defense" in Eastern Europe. Above all, GRU is to develop ideas for a "preventative response" to said supposed threat. (1) Korabelnikov clearly did not wish to state explicitly what measures GRU would take against the missile shield. But, given the agency's past successes in atomic espionage, it seems safe to assume that infiltration of installations, and possibly technical sabotage will be high on the list of active measures.

Not surprisingly, Korabelnikov devoted some space to the ongoing Georgian crisis, claiming that Russia had been forced to act, due to "Georgia's continuing aggression" against the "countries" of South Ossetia and Abkhazia. (2) Just as Aleksandr Bortnikov had done for the FSB's special units some weeks ago, Korabelnikov praised GRU's special forces, noting that they would "continue to participate actively in operations aimed at removing terrorist threats," as well as the "bandit underground." (3) The implication clearly was that military intelligence Spetsnaz units played a major role in the incursions, although their precise role likely will remain secret.

There are two aspects to note about Korabelnikov's utterances. The first is that his statements did not deviate at all from the political line espoused by President Dmitri Medvedev and Prime Minister Vladimir Putin. This indicates either that GRU does not wish to rock the boat, or more likely, that GRU assesses the “threats” to Russia in the same way as the Kremlin. Secondly, and perhaps more importantly from a domestic-political standpoint, Korabelnikov explicitly addressed GRU's role. He insisted that military intelligence "holds an important place in the system of Russia's national and military security," and that "it is a powerful and effective tool of protecting its strategic interests by acting from positions both in Russia and abroad." (4)

In contrast to his contemporaries and colleagues at the FSB, Korabelnikov does not speak frequently in public or to members of the press. When he does, therefore, there is a clear signal being sent. Given the FSB's expansionistic history, his latest comments constitute a repeat of last year's anniversary message: GRU is still here…and still functions as an independent, competent agency.

Update: Politkovskaya trial
Late in September, Murad Musayev, attorney for one of the individuals accused of conspiring in Anna Politkovskaya's assassination, filed papers with the Russian authorities requesting that the forthcoming trial be public rather than secret.  At the time, it seemed likely that this request would be denied because one of the accused was a serving FSB Officer, Lieutenant Colonel Pavel Ryaguzov, and the authorities would seek to avoid inconvenient questions being asked about his involvement. (5)

On Monday November 17, the date set for the trial's opening, the authorities ruled that the proceedings could be made public.  Three men—the Makhmudov brothers (Ibragim and Dzhabrail), and Sergei Khadzhikurbanov, a third alleged conspirator, are to face trial at this time. (6) The reason for this ruling became obvious during the proceedings: Ryaguzov—despite appearing briefly before the judge—is to be tried separately. This trial likely will be used to set the government's narrative in the case, namely that of an organized crime vendetta against the reporter. Unless this narrative can be established successfully and convincingly in the public's eyes – and more importantly in the eyes of Politkovskaya's former employers at Novaya gazeta, there is little chance that Ryaguzov's trial will also be an open affair.

 Patrushev: Security point man
In the aftermath of Vladimir Putin's move to the premiership last spring, Russia's Security Services underwent a reshuffle. Aleksandr Bortnikov took over as Head of the FSB, while Nikolai Patrushev was transferred to lead the Security Council. Last month, Patrushev, in his new role, traveled to Venezuela and India to negotiate arms and nuclear cooperation deals, respectively. (7)

During the early part of this month, Patrushev has continued to act as point-man on external national security matters, meeting with the Brazilian Minister for Strategic Affairs, Roberto Mangabeira Unger and Chinese State Council Member Dai Bingguo, both in Moscow on official business.  Patrushev noted that Brazil is the "leading country of Latin America," (8) and stated that Russia wishes to develop "strategic cooperation" with that country. (9) No information has been released about the Chinese discussions, other than a confirmation that consultations are to be held on a regular basis.

The South American connection has assumed increased importance for Russia in recent months. Russia has requested observer status in the nascent South American Defense Council, and reports have emerged that Patrushev also visited Argentina on his South American junket to discuss future "technical-military cooperation" between Buenos-Aires and Moscow. The Argentine government reportedly wishes to buy Russian helicopters, and it seems likely that this purchase was discussed during Patrushev's brief stop-over in the capital. (10)

A glance at a map indicates why Brazil, Venezuela, and Argentina have assumed such strategic importance for Russia. Moscow is seeking to reassert itself on the international stage, and these three countries taken individually or together, possess a large percentage of the South-Atlantic coast-line. Long-term basing rights for the Russian navy—as well as other assets—may well be included in some or all of the weapons or cooperation deals that are to be concluded in the near future.

At the time of the reshuffle, it was easy to hypothesize (given his status as a member of the St. Petersburg “clan”) that Patrushev's new position might mean that Prime Minister Putin retained control of national security matters. The fact that Patrushev has been entrusted with international security deals seems to confirm this hypothesis.

In Brief: Changes at MVD
On September 6, President Medvedev signed a decree abolishing the Anti-Organized Crime and Terrorism Department (DBOPiT) of the Interior Ministry. The section's functions were transferred wholesale to the MVD's Criminal Investigation Department and the Economic Security Department. The decree also created a new bureau within the Interior Ministry focusing on "Extremism Countermeasures." (11) Early this month, personnel changes connected to the decree finally were carried out. Colonel-General Sergey Meshcheryakov, Chief of DBOPiT, was granted early retirement along with two of his deputies. (12) The new department head for Counter Extremism is Lieutenant-General Yuri Kokov. (13)

Russian analysts have posited that the purpose behind the reshuffle is to protect the position of Interior Minister Rashid Nurgaliyev. Meshcheryakov allegedly had become too strong, posed a threat to the MVD's senior leadership, and therefore needed to be removed to protect Nurgaliyev and his deputies. (14) The tactic used to do so is reminiscent of Soviet days: decapitate, divide the too powerful departments…and rule.

Source Notes:
(1) "Russian Military Intelligence Watching World Situation Closely," ITAR-TASS, 4 Nov 08; OSC Summary via World News Connection.   
(2) Ibid.
(3) "Russian Military Intelligence Closely Follows Situation In Caucasus," ITAR-TASS, 4 Nov 08; OSC Transcribed Text via World News Connection.
(4) "Russian Military Intelligence Watching World Situation Closely," ITAR-TASS, 4 Nov 08; OSC Summary via World News Connection.
(5) See The ISCIP Analyst, Volume XV, Number 2 (9 October 08).
(6) "Politkovskaya Case Opens, " BBC News, 17 Nov 08 via
(7) See The ISCIP Analyst, Volume XV, Number 4 (6 Nov 8).
(8) "Russia Seeks Strategic Cooperation With Brazil-Patrushev," Interfax, 10 Nov 08; OSC Transcribed Text via World News Connection.
(9) "Russian Security Official Calls For Greater 'Strategic Cooperation' With Brazil," Interfax, 10 Nov 08; OSC Translated Text via World News Connection.
(10) "Russia Expresses Wish To Integrate South American Defense Council. Unattributed Report: 'Russia Wants To Be A Member of the South American Defense Council," InfoRel, 31 Oct 08; OSC Translated Text via World News Connection.
(11) "Russia: Top-Level MVD Replacements. Marina Yurshina Report; 'Ten Generals Have Been Stripped Of Their Positions: Top Personnel Reshuffle in the MVD,'" Gazeta, 10 Nov 08; OSC Translated Text via World News Connection.
(12) Ibid.
(13) "Russian Internal Affairs Ministry Reorganizes, Eliminates Organized Crime Unit: Report by Yelena Shmayeva, Olesya Gerasimenko and Polina Nikolskaya: 'The MVD Beats Organized Crime Inside Itself,'", 11 Nov 08; OSC Translated Text via World News Connection.
(14) Ibid.

By Fabian Adami (



Russian military reform – the long and winding road 
Traveling down the path of Russia’s military reform, some government officials and various interest groups are trying to determine what the transformed military ultimately will look like.  Additionally, the recent tragedy aboard the Nerpa (a Russian Akula-class submarine) has cast doubts on the proficiency of the Russian military industrial complex, which is a critical engine in developing technological solutions for transformational change.  In both the organizational and industrial cases, there continues to be vociferous opposition within Russia.   

Task organization
 According to the Russian Defense Ministry, twenty-three Russian ground force divisions recently have been slated for deactivation, in order to replace their combat function with smaller and more agile brigades. (1)  The stated intent is to incorporate manpower savings, and therefore Defense Minister Anatoli Serdyukov continues to push for the slashing of commissioned and general officer billets.  Serdyukov notes, “By 2012 we will have a one-million man army, in which officers will account for 15% of the total number of servicemen.” (2)

While the public focus has been primarily on the combat forces, there will be also an immediate impact on combat support and service support troops.  Some of the reform is based on overhauling a wide array of equipment, as Chief of the Russian Federation Armed Forces Communications Yevgeni Meychik notes, stating that “a radical reevaluation of the forms and methods for providing communications …” is needed for his sector. (3)  The recent combat operations in Georgia revealed that the bulk of Russian communications equipment was obsolete and did not provide “adequate communications services.” (4)  Manpower cuts are also on the horizon for combat service troops, namely the Russian medical corps.  Military outpatient clinics may be reduced by one-third, the number of military hospitals cut by 40 percent, and commissioned officer doctors may be reduced by a massive 80 percent. (5)   

There has been also significant debate on military training and education reform that will impact both combat and combat support troops.  Currently there are approximately 70 military academies, but Deputy Defense Minister Army General Nikolai Pankov has proposed to establish, “10 fairly large schools which will form the backbone of the military education system.” (6)

In order to set the tone for military reform, Serdyukov specifically targeted “elite” and historically significant organizations such as the 2nd Taman Motorized Rifle and 106th Tula Airborne Divisions to be among the first to change. (7)  Head of the Institute of Political and Military Analysis Analytical Department, Aleksandr Khramchikhin opines that these units were not a random selection.  He notes the reforms will become irreversible where, “formations which were a ‘sacred cow’ and which had not been touched during any of the previous reforms were taken up first.” (8) Essentially, this effort attempts to cut off conservative leaders’ retreat to “sanctuary” units in order to wait out the reformation.  

Industrial complex
While the organizational changes are slated to start almost immediately, the requirements for technology to power Russia’s military reform, especially with regards to command and control, air-to-ground integration, and force projection are more daunting.  The glimmering appearance of a resurgent Russian military industrial complex was dulled with Russia’s recent tragedy involving the submarine Nerpa.  During the 8 November accident, 20 persons were killed and another 21 were injured when freon gas purportedly swept through two compartments on the overcrowded submarine (224 people verses the usual complement of 80-90), which was conducting tests in the Sea of Japan. (9)  An officer on board the submarine, Aleksei Shanin, recalls, “We had to smash down the doors of the cabins that had been locked.  We took the lads out.  Two breaths of freon and that’s it.” (1o)

While training accidents occur, regardless of the country, various experts are pointing out that this recent submarine incident is indicative of the serious decay of the Russian military.  The Vice President of the Academy of Geopolitical Problems, Leonid Ivashov opined, “We cannot support our army with the output of the defence-industrial (sic) complex on a large scale any longer.” (11)  He also noted there are shortages of designers, specialists, and individuals to work through the challenges of production. (12)  With regards to the Nerpa, the Chairman of the Russian Federation Public Chamber, Aleksandr Kanshin added that the accident, “Undermines the authority of the Russian arms manufacturers as well as military servicemen’s confidence in the reliability of the Russian military equipment.” (13)  Other Russian military analysts, such as Pavel Felgenhauer, have deemed the incident as, “a severe blow [that] shows the kind of problems many people have been reporting about the Russian defence [sic] industry.” (14)  Moreover, Felgenhauer characterizes the challenges of blending Soviet-era technology (the Nerpa began construction in 1991) with newer technology as not necessarily being a “good idea.” (15)   

Voices of opposition
The Nerpa incident aside, the Defense Minister’s reform program has hit several friction points.  Sources report that the bulk of the military officers have, not surprisingly, reacted negatively towards these reforms, especially in light of massive draw downs within their own corps. (16)  Who is to lead Serdyukov’s reform effort?  Major General Sergei Surovikin was appointed recently as the chief of the Main Operations Directorate, which acts as the “nerve center” for the armed forces.  This directorate promises to play a vital role in Russia’s military reform.  The post had been vacant for several months – since Colonel-General Aleksandr Rukshin “retired” for disagreeing with the military reforms. (17)  In addition, several attempts were made to offer the position to every senior-ranking military district chief, however they all allegedly refused;  sources noted that these officers, “did not want to participate in the disintegration of the Army.” (18)

Debating the merits of military reform on television, Major General Aleksandr Vladimirov admitted, “Our victorious five-day war with Georgia showed up the poor performance of the General Staff, the poor performance by the command of the military district, and the poor performance of the army command.” (19) At issue, military pundits continued to argue, is whether or not a brigade-based army is the correct, or even useful solution for securing vast regions of Russia in a protracted campaign. (20) 

Meanwhile, dozens of senior General Officers and leaders of veterans groups, acting as part of a greater “military patriotic community of Russia,” attacked the proposed reforms in a letter to all citizens.  The signatories noted, “Ours is an Army structure that has been tested with time … there is no need nor funds to destroy all of that now.” (21) 

The first set of organizational changes will begin in the next few months.  Will the efforts of the opposition leaders, coupled with the recent submarine accident provide enough friction to slow Serdyukov’s military reforms?  Despite the opposition, it is likely that the organizational changes will continue to be rammed through.  If history is an effective guide, the overhaul of the military industrial complex is highly dependent on funds (especially from a stable economy and petroleum exports), a large, well-trained industrial work force, and a strong research and development base.  This process clearly will take time and may not fully synch with the Defense Minister’s plan for reform completion by 2012.

Source Notes:
(1) “23 divisions of Russian ground forces to be disbanded in 3 years – source,” Interfax News Agency, 7 Nov 08 via Lexis-Nexis.
(2) “Russian army to cut over 200,000 officer jobs – General Staff,” Interfax News Agency, 12 Nov 08 via Lexis-Nexis.
(3) “Russian newspaper interviews armed forces communications head,” Krasnaya zvezda, 18 Oct 08; BBC Monitoring Former Soviet Union – Political, 3 Nov 08 via Lexis-Nexis.
(4) Ibid.
(5) “Paper mulls elimination of warrant officers in Russian armed forces,” Vremya novostei, 24 Oct 08; BBC Monitoring Former Soviet Union – Political, 11 Nov 08 via Lexis-Nexis.
(6) “Military academies to survive Russian army reform,” Zvezda TV, Moscow, 6 Nov 08; BBC Monitoring Former Soviet Union – Political, 8 Nov 08 via Lexis-Nexis.
(7) “Russian army reform to begin with elite units – Moscow daily,” Kommersant, 28 Oct 08; BBC Monitoring Former Soviet Union – Political, 2 Nov 08 via Lexis-Nexis.
(8) Ibid.
(9) “Survivors recall panic on deadly Russian submarine: newspapers,” Agence France Presse, 11 Nov 08 via Lexis-Nexis.
(10) Ibid.
(11) “Russian military analyst deplores demise of defence-industrial (sic) complex,” Ekho Moskvy, 11 Nov 08; BBC Monitoring Former Soviet Union – Political, 11 Nov 08 via Lexis-Nexis.
(12) Ibid.
(13) “Russian sub accident exposes “serious problems” in defence (sic) industry – official,” Interfax-AVN Military News Agency, 10 Nov 08; BBC Monitoring Former Soviet Union – Political, 10 Nov 08 via Lexis-Nexis.
(14) “Sub accident exposes Russian posturing: analysts,” Agence France Presse, 9 Nov 08 via Lexis-Nexis.
(15) Ibid.
(16) “Russian newspaper highlights changes in army General Staff,” Nezavisimaya gazeta, 7 Nov 08; BBC Monitoring Former Soviet Union – Political, 11 Nov 08 via Lexis-Nexis.
(17) Ibid.
(18) Ibid.
(19) “Russian TV report questions military reform blueprint,” Ren TV, Moscow, 1 Nov 08; BBC Monitoring Former Soviet Union – Political, 4 Nov 08 via Lexis-Nexis.
(20) Ibid.

(21) “Russian paper demands defence (sic) minister’s resignation in open letter [Article entitled: ‘Halt the Pogrom of the Army!’],” Sovetskaya Rossiya, 1 Nov 08; BBC Monitoring Former Soviet Union – Political, 3 Nov 08 via Lexis-Nexis.

By Lt Col Erik Rundquist, USAF (

The thoughts and opinions expressed in this article are those of the author and do not necessarily reflect the official position of the United States Air Force, Department of Defense, or the United States government.



ABM dispute heats up
Dimitri Medvedev sparked renewed contention over the planned US anti-Iranian anti-ballistic missile (ABM) system in Central Europe, when he proposed military countermeasures to that program during his address to the Russian Federal Assembly.  Medvedev stated that Russia would deploy Iskander missiles to its Baltic enclave of Kaliningrad, from where they could strike future US ABM installations in Poland and the Czech Republic.  However, the planned missile deployment is not likely to take place in the near term, indicating that Moscow is more interested in staking out a bargaining position on ABM and communicating a message both to America’s European allies and President-elect Obama.

President Medvedev outlined plans for countering the American missile shield in his state of the nation address on November 5th.  Referring to the proposed American ABM system in Poland and the Czech Republic as a test of Russian strength, he explained that Russia would respond with electronic countermeasures and the deployment of short-range Iskander missiles to Kaliningrad in order, “if necessary, to neutralise the missile defence system.” (1)  The idea of missile deployments to Kaliningrad, the westernmost piece of Russian territory, is not new, but this is the first official confirmation that such measures would be enacted in response to the US ABM system.

The Russian president’s comments came as new American compromise proposals were delivered to Moscow.  US Undersecretary of State for arms control John Rood announced on November 6 that new measures for resolving the ABM impasse had been sent prior to Medvedev’s speech, though he did not elaborate on their substance. (2)  Initially, the Russian government took no position on the proposals, saying only that they were being studied. (3)  On November 8th, Foreign Minister Sergei Lavrov met with Secretary of State Condoleezza Rice in Egypt, but the two broke no new ground on the ABM issue. (4)  Then, a few days later, a Kremlin source rejected Washington’s initiatives, calling them “insufficient” and claiming that the current US Administration was trying to “put the new US president in a no-way-out situation” on missile defense. (5) 

If the missiles are stationed in Kaliningrad, it is expected that they will be accompanied by additional conventional air and ground units meant to protect them from attack. (6)  However, the deployment is unlikely to occur soon, since the missiles have yet to be built.  In fact, Russia is curtailing exports of Iskander missiles, in order to give priority to outfitting its own troops. (7)  Even so, the prospect of any action within the next year is limited.  One analyst, writing in Kommersant, stated that he doesn’t expect the Russian army units in question to receive the new missiles before 2010 or 2011. (8)  An anonymous source from the Defense Ministry was quoted by RIA Novosti as saying that five Russian brigades would be equipped with Iskander missiles “by 2015,” though he did not say when deployments would begin. (9) 

With any actual deployment still several years off, Medvedev’s announcement probably is meant as a message to the West and to serve as a bargaining chip in any future ABM negotiations.  This stance was made explicit in a statement by Deputy Foreign Minister Aleksandr Grushko, who explained that missiles will be deployed only if the US goes forward with ABM.  “If the U.S.A. refuses to deploy it,” he said, “there will be no need for the Russian side to take precaution [sic] measures.” (10) 

The decision likely was meant, in part, to make Washington’s European allies reconsider their support for missile defense.  Russia’s representative to the European Union explained, “Serious colleagues realize this it is just a response [to the US]” and that he hoped the move would not damage EU-Russian relations. (11)  Dimitri Rogozin, Russia’s NATO envoy, was characteristically brusque in hoping that Warsaw and Prague would consider whether their security was worth risking “for the sake of the cunning and selfish interests of the American military-industrial complex.” (12)

However, it was clear that the impending inauguration of President-elect Barack Obama loomed large over Moscow’s thinking on its ABM stance.  Obama has qualified his support for the system by stating that it must demonstrate its effectiveness before being deployed. (13)  Medvedev has said this stance “gives us ground [sic] for hope.” (14)  Foreign Minister Sergei Lavrov linked Iskander policy and Obama more directly, explaining, “We acted in an honest way, in particular, in relation to the new US administration which [...] would analyse the situation [...] in terms of its cost and effectiveness.” (15)

Ultimately, Moscow’s greatest reason for hope on ABM may be the current economic crisis rather than any political development. Lean times and conflicting priorities will mean renewed scrutiny for a number of budget items, including funding for European missile defense.  Russia’s Iskander missile threat may be aimed at making ABM spending that much easier to cut, by increasing the political costs of proceeding with the project. 

If that is Russia’s intention, the move may have some success in light of the enormous fiscal challenges facing Washington’s policy-makers in 2009.  If it is not, Moscow assumes apparently that it has given itself a stronger hand when negotiating the missile defense issue in the future. 

Source Notes:
( ) Medvedev, Dimitry, “Address to the Federal Assembly of the Russian Federation,” 5 Nov 08 via
(2) “US offers Russia fresh proposals on US missile defense plan,” Agence France Presse (AFP), 6 Nov 08 via
(3) “Moscow receives updated US missile shield proposals,” RIA Novosti, 7 Nov 08 via
(4) “Transcript of Response to Questions from Members of the Russian Media by Russian Minister of Foreign Affairs Sergey Lavrov After a Working Meeting with US Secretary of State Condoleezza Rice, Sharm el Sheikh, Egypt, November 8, 2008,” Ministry of Foreign Affairs of the Russian Federation, 11 Nov 08 via
(5) “US response to Russian ideas on ABM in Europe ‘insufficient’ - Kremlin source,” Interfax, 12 Nov 08; BBC Worldwide Monitoring via Lexis-Nexis.
(6) Kramnik, Ilya, “The Iskander: a story of a new face-off,” RIA Novosti, 11 Nov 08; Russian Press Digest via Lexis-Nexis.
(7) “Russia suspends Iskander missile exports to equip military,” RIA Novosti, 12 Nov 08 via
(8) Barabanov, Mikhail, “The Iskander Factor,” Kommersant 10 Nov 08; Russian Press Digest via Lexis-Nexis.
(9) “Russia: 5 brigades to get Iskander missiles; officials, pundits on anti-ABM plan,” RIA Novosti, 7 Nov 08; BBC Worldwide Monitoring via Lexis-Nexis.
( 0) “Russia not to deploy missiles in region unless USA deploys ABM system in Europe,” Interfax, 9 Nov 08; BBC Worldwide Monitoring via Lexis-Nexis.
( 1) “Missiles in Kaliningrad Region should not mar Russia-EU relations - envoy,” Interfax, 7 Nov 08; BBC Worldwide Monitoring via Lexis-Nexis.
(12) “Russia’s envoy to NATO praises president’s missile deployment initiative,” Interfax, 5 Nov 08; BBC Worldwide Monitoring via Lexis-Nexis.
( 3) “Obama denies Poland missile vow,” BBC World News, 8 Nov 08 via
( 4) “Interview to the French Newspaper Le Figaro,” 13 Nov 08 via
( 5) “Russia reiterates response to US missile defense plans for Europe,” Ekho Moskvy radio, 15 Nov 08; BBC Worldwide Monitoring via Lexis-Nexis.

By Shaun Barnes (




Russia promises a nuclear renaissance
In October, a delegation of public works officials from Qatar paid a visit to the Moscow headquarters of Russian nuclear power company Atomstroyexport, where they viewed presentations highlighting new construction projects in Iran, China, Bulgaria, and India. (1) Atomstroyexport can put on an impressive show. The company, a former arm of the Soviet Ministry of Atomic Energy, now boasts a 20 percent share of all global orders for new nuclear facilities, with seven reactors currently under construction, beating all of its western competitors. (2)

Qatar is only the latest customer to call on the Russian company to meet a rising demand for cheap, clean nuclear power. Developing countries, frustrated by the high price tag and onerous political checklists attached to western-designed nuclear power plants, increasingly have turned to Atomstroyexport due to its negotiable terms and prompt construction schedule. Last year, the company brought the first two units of a nuclear power station on line at Tianwan, near China’s eastern city of Lianyungang, and this year it launched the second phase of construction. (3)

In February, Atomstroyexport won a bid for four new nuclear reactors in India, where it is already engaged in building two units at Kudankulam. (4) “Energy security is the most important of the emerging dimensions of our strategic partnership,” Indian Prime Minister Manmohan Singh said at the signing ceremony. “Russia’s position as a global leader on energy issues is widely recognized.” (5) The deal followed a pledge by the United States in 2006 to cooperate with India on its civilian nuclear power program, and signals India’s abiding preference for the energy policies of Moscow.

In September, Atomstroyexport broke ground in Bulgaria on the Belene nuclear power plant, the first post-Soviet nuclear facility built by Russia in Europe. “This project is both Bulgarian and European,” Bulgarian Prime Minister Sergei Stanishev said, noting that the project had been approved by the European Commission.

But the Atomstroyexport project that has attracted the most attention, and triggered the most criticism, is Iran’s Bushehr nuclear power plant. Critics claim that the plant will put enriched uranium in Tehran’s grasp. Moscow counters that the reactor will serve the purely civilian purpose of electricity generation and falls, moreover, within the framework of international treaties. (6) Furor over the Bushehr reactor’s use overlooks a more fundamental issue: Russia has become a provider of nuclear technology to governments that western power companies prefer to avoid. Russian Energy Minister Sergei Shmatko has engaged in talks with Vietnam, Malaysia, Egypt, Namibia, Morocco, South Africa, Algeria, Brazil, Chile, and Argentina. To that list should be added the less than savory regimes in Venezuela and Myanmar. (7)

The primary issue is safety. Though the disaster at Chernobyl in 1986 may seem like a lifetime ago, the dangers of nuclear power have not receded beyond the realm of the possible. Nuclear reactors require rigorous standards of supervision and coordination with neighboring countries. If rogue nations governed by opaque regimes that are accountable neither to their own citizens nor to foreign neighbors obtain nuclear technology, safety cannot be assured. Given the magnitude of disaster that can arise from failure at a nuclear facility, the risk is immediate.

Lessons have been learned from past mistakes. A repetition of the Chernobyl disaster is now virtually impossible, according to a German nuclear safety agency report. Russia has modified its reactors, changing the control rods and adding neutron absorbers, increasing fuel enrichment for greater stability at low power. Nuclear power plants have been fitted with sophisticated computerized process control systems and automatic inspection equipment. Atomstroyexport has introduced a technology known as a “core catcher” to trap the molten slug of uranium in the event of a meltdown, to prevent it from seeping into the earth. (8) The new generation of Russian-built nuclear power plants fully meets the safety requirements set by the International Atomic Energy Agency (IAEA). (9) So long as a country allows international monitoring and participates in multi-lateral collaboration with other nuclear operators, safety may be a reasonable expectation.

However, new technologies carry new risks. Atomstroyexport is preparing to introduce the world’s first floating nuclear reactor, built atop pontoons, in 2010. (10) By 2020, the company plans to offer five floating plants that can be towed into the ports of coastal countries and connected to the local power grid, for a fee. (11) Atomstroyexport is promoting the plants as a source of cheap electricity to the developing world, but critics are wary. The director of the Nuclear Safety Project at the Union of Concerned Scientists warns that “its worst day would be much worse than a land power plant’s.” (12)

Source Notes:
(1) “Qatar electricity, water company to begin nuclear cooperation with Russia,” Report by Qatar newspaper Al-Sharq, republished by BBC Worldwide Monitoring, 22 Oct 08 via Lexis-Nexis Academic Universe.
(2) “Russia, Bulgaria start building nuclear power plant,” RIA Novosti, 3 Sep 08 via (
(3) “Russia, China see nuclear power as a priority in economic ties,” RIA Novosti, 24 May 08 via (
(4) “India, Russia agree nuclear deal,” BBC News, 12 Feb 08 via (
(5) “New India Accords With Russia Include More Nuclear Power Plants,” The New York Times, 26 Jan 07 via (
(6) “For a Russian Builder of Nuclear Plants, Business Is Booming,” The New York Times, 12 Jun 07 via (
(7) “Russia and Burma in nuclear deal,” BBC News, 15 May 07 via (
(8) “For a Russian Builder of Nuclear Plants, Business Is Booming,” The New York Times, 12 Jun 07 via (
(9) Russia Safety Status report, IAEA website via (
(10) “Russia building nuke barge to power Arctic,” CNN, 13 Oct 06 via (
(11) “How Safe Are the Floating Nuclear Power Plants of Russia?”, 22 May 08 via (
(12) “Russia building nuke barge to power Arctic,” CNN, 13 Oct 06 via (

By Creelea Henderson (




Economic fallout
The war between Georgia and Russia over South Ossetia has taken a considerable toll on the Georgian economy. According to Thea Kentchadze of the Georgian Foundation for Strategic and International Studies, the August conflict cost Georgia $1.2 billion. Her estimate included investors’ pullouts of bank deposits, as well as the environmental damage sustained through oil spills in the Black Sea and forest fires. (1) These are catastrophic losses in an economy whose GDP totaled $9.8 billion in 2007. (2)

Furthermore, according to the Joint Needs Assessment conducted by the World Bank and the United Nations, economic growth has shrunk from 9 percent (pre-conflict) to 3.5 percent. Foreign direct investment has contracted from $2.1 billion to $1.2 billion and investor confidence has declined sharply. (3) The World Bank predicted an economic downturn lasting through the first quarter of 2009, with a recovery beginning in the second quarter of that year. It is unclear whether this assessment took into account the impact of the growing global financial crisis on the Georgian economy. (4)

The economic impact of the war will be mitigated significantly by aid from other countries and international organizations. At a donor conference on 22 October in Brussels, the EU and its member states pledged $810.5 million dollars to Georgia, over the course of three years. The United States already had pledged $1 billion in non-military aid. In concert with commitments from international financial institutions and other countries, Georgia’s aid package for 2008-2010 tallies at a massive $4.5 billion. (5) Of that total, generous amounts are allocated toward rebuilding Georgia’s infrastructure, particularly in the areas of transportation and energy ($681.6 million and $381 million, respectively). Other areas receiving significant contributions are the banking sector and agencies providing aid to refugees from the August war ($852.8 million and $350.2 million respectively). (6)

It is unclear precisely how the global financial crisis will affect the Georgian economy. According to Vladimer Papava, who served as Georgian Economics Minister from 1994-2000, there is no “objective reason” why Georgia should suffer a currency crisis, as a result of the world-wide economic downturn. (7) The Georgian lari did suffer a sharp devaluation on 7 November, when trading at the Interbank Currency Exchange (ICE) in Tbilisi closed unexpectedly, causing a panic in the currency market. At the time, officials claimed the closure was due to technical difficulties. Later however, on 10 November, Acting President of the National Bank of Georgia David Amaghlobeli announced that his institution had carried out this “correction in the exchange rate” at “the most suitable time…chosen for this action.” (8) His statement appears to be a retroactive defense of a panicked response. Regardless, any such future corrections should be announced before they take place, in order to maintain credibility and bolster investor confidence that already has suffered from the war with Russia.   

The global economic crisis already has served as the pretext for political changes in the Georgian government. When he appointed Grigol Mgaloblishvili as prime minister in October, Georgian President Mikheil Saakashvili transferred the previous prime minister, Lado Gurgenidze, to the position of co-chair of a newly established financial and investment commission. According to Saakashvili, the new commission will “coordinate attraction of investment and oversight of the banking sector. This is a special body, which is created in connection with the international financial crisis and this council’s goal will be to avert the financial crisis consequences for the country.” (9) According to Saakashvili, his choice of Mgaloblishvili also was based on economic motivation. The president cited Mgaloblishvili’s connections with Turkey, where he served as ambassador for four years, as critical in maintaining that country’s continued high investment in Georgia.

Source Notes:
(1) Thea Kentchadze, “Georgia – In the Aftermath of Crisis,” Conference Presentation, 29 Oct 08, Helsinki, Finland via Georgia News Digest, 17 Nov 08.
(2) “Country Report: Georgia,” Sep 08, Economist Intelligence Unit.
(3) “Georgia: Summary of Joint Needs Assessment Findings,” Prepared for the Donors Conference of October 22, 2008 in Brussels, United Nations and World Bank via
(4) “Georgia: Summary of Joint Needs Assessment Findings,” Prepared for the Donors Conference of October 22, 2008 in Brussels, United Nations and World Bank via
(5) “European Commission/World Bank, Contributions by Donor (USD),” Georgia Donors Conference, Brussels, 22 Oct 08 via
(6) “European Commission/World Bank, Contributions by Sector (USD),” Georgia Donors Conference, Brussels, 22 Oct 08 via
(7) “Georgia’s Green Friday,” 17 Nov 08, The Georgian Times via
(8) “Statement of the Acting President of the National Bank of Georgia, David Amaghlobeli on the Adjustment of the Lari Exchange Rate,” 10 Nov 08 via
(9) “New PM Nominated,” 27 Oct 08, Civil Georgia via

By Robyn E. Angley (



Uzbekistan suspends EurAsEC membership
Approximately one month ago, Uzbekistan’s Ministry of Foreign Affairs submitted a letter from President Islom Karimov to the secretariat of the Eurasian Economic Community (EurAsEC) Integration Committee, informing EurAsEC officials that the Uzbek government had decided to suspend its membership in the organization.  EurAsEC was established in October 2000 by Russia, Belarus, Kazakhstan, Kyrgyzstan and Tajikistan; Uzbekistan did not join until January 2006. (1)  The organization is an outgrowth of the Commonwealth of Independent States (CIS) and generally is considered to be one more tool, which the Russian government can utilize to exert influence in the former Soviet republics – in EurAsEC’s original charter, the Russian Federation was allotted forty votes on the Interstate Council and Integration Committee, twice the amount of Kazakhstan and Belarus’ vote share, and four times that of Tajikistan and Kyrgyzstan.  These voting shares were apportioned based on members’ “respected prorated contributions to the Community Budget.” (2)

Although there has been much speculation about the reasons behind President Karimov’s decision, neither he nor the Uzbek foreign ministry has issued any statements explaining what, to the outside observer, would seem to be a sudden about-face on the direction of Uzbekistan’s foreign policy.  Since reactivating its membership in the Collective Security Treaty Organization (CSTO) in 2006, the Uzbek government has appeared to orient itself more toward Russia, while allowing its relations with the US and Western Europe to stagnate.  Russian companies have been granted a number of potentially lucrative gas and other business contracts in Uzbekistan and for the most part, Tashkent has not attempted to oppose the Putin-Medvedev regime’s policies in the “Near Abroad” or anywhere else.  However, now many are interpreting the EurAsEC suspension as a sign that President Karimov’s administration once again is willing to do business with Western companies and may be more receptive to the policies of the regimes they represent.

In fact, various experts and pundits have linked Karimov’s decision directly to the fact that in mid-October the European Union lifted the remainder of the sanctions that it had imposed against the Uzbek government following the 2005 civil unrest and bloodshed in Andijon.  Karimov’s letter to the EurAsEC committee was delivered only days after the EU announced its decision.  Many also consider Tashkent’s action to be a clear message and slap in the face for Moscow and likely only a harbinger of further rebuffs to come. (3)  One expert, Director of the Institute of CIS Countries Konstantin Zatulin, has predicted that, depending upon Russia’s reaction, the Uzbek government will choose to withdraw from the CSTO, as well. (4)

Mr. Zatulin’s assessment is consistent with the argument that views Karimov’s decision simply as the latest stratagem in his attempt to play Russia, the US and European Union against each other, in a bid to gain greater concessions from each one.  Based upon this line of reasoning, the Uzbek president’s next move will be dictated solely by the reactions of these three entities and whichever government reacts most favorably will win concessions from Tashkent.  Although Karimov’s positions on foreign and economic policy undoubtedly have been influenced by Russia and various Western administrations in the past, his latest action may be linked more closely to his regional aspirations than to his ambitions in the international arena.  By suspending Uzbekistan’s EurAsEC membership, the president has attained more independence and greater maneuverability for his administration in its regional relations.  Theoretically, at least, one of EurAsEC’s main goals is to increase trade and commerce between its member states; the organization’s founding charter calls for the establishment of a “Customs Union and Single Economic Space,” (5) which would require the signatories to commit to a free trade regime, agree on customs duties, simplify customs procedures and adopt unified legislation on the cross-border transfer of goods.  Anti-dumping and other protectionist trade policies would be abolished and eventually all customs controls within the free trade zone would be abrogated, allowing for the free movement of not only goods and capital, but of the workforce, as well. (6)

Although an agreement on the “Single Economic Space” was signed in 2003 (7) and Russia, Belarus and Kazakhstan finally formed a customs union this year, (8) few of EurAsEC’s other goals have been implemented – visa regimes and customs duties are still in place between the various Central Asian states and cross-border trade continues to be hampered by protectionist trade policies and complicated, lengthy, corruption-riddled customs procedures.  The Uzbek government has been one of the worst abusers of customs and trade policy in the region, repeatedly shutting down sections of its border with all four of its neighbors, restricting imports and exports of certain products, and planting landmines on the borders it shares with Tajikistan and Kyrgyzstan.  Citizens of other Central Asian states wishing to enter Uzbekistan to visit relatives or on business routinely face harassment and even verbal abuse from the border guards, who frequently demand bribes in return for allowing someone to pass across the border.  Based on the Uzbek government’s post-Soviet trade policy thus far, it seems fairly certain that the establishment of a free trade zone permitting the unfettered movement of both goods and people across Uzbekistan’s borders is precisely the opposite of what Karimov is striving to achieve.  The strictures that the imposition of such a regime could impose would severely limit Tashkent’s ability to wield its customs and trade policies as a weapon in defense of its own oppressive economic and social practices.

To date, the EurAsEC signatories primarily have ignored the aims set out by the body’s charter, however, for the past year, the Russian and Kazakh governments once again have begun pursuing the organization’s goals with a bit more enthusiasm, as evidenced by their decision to form the customs union called for in the EurAsEC’s charter.  Their decision apparently rankled with the Uzbek president: an unnamed source in Russia’s foreign ministry told Kommersant correspondents that Karimov resented the fact that his country was not included in the customs union’s formation.  The source also stated that “…I can say that the Uzbek leadership recently has criticized YevrAzES [Russian acronym for EurAsEC] repeatedly, saying the organization is ineffective. Karimov even said it should merge with the CSTO.” (8) The Uzbek president’s dissatisfaction may stem from more than just a sense of having been slighted at being left out of the customs union – in fact, his disgruntlement actually may mask dismay at the fact that the notion of establishing a free trade zone seems to have found new life.  Furthermore, his alleged desire to fold EurAsEC into the CSTO could be part of a strategy to transform the organization into a more security-oriented entity and eliminate the bulk of its economic goals, particularly those which would require Uzbekistan to open its borders to regional commerce.

For most of its post-Soviet history, the Uzbek government has hewn its own path regarding trade and economic policy and has eschewed any regional or international cooperation that would require ceding even a modicum of control over its own borders.  President Karimov generally is not viewed as a “team player,” unless he is the one leading the team and dictating all of its actions, according to his own interests.  He may have hoped that by rejoining the CSTO and entering EurAsEC, Uzbekistan finally would be granted a clear leadership role in Central Asia’s regional affairs.  Not only have these expectations remained unfulfilled, but Kazakhstan, Russia and Belarus’ recent action has reactivated the specter of the free trade zone, a concept which threatens the Uzbek government’s command over its cross-border traffic, as well as its ability to protect and isolate its markets from regional competition.  As a wholly independent player, outside EurAsEC, Karimov will have complete latitude to make bilateral trade deals with his neighbors, based on what most benefits both himself and his administration.  He also retains the right to use Uzbekistan’s customs and trade policies as instruments of coercion against neighboring countries, a license that he seems to hold especially dear.

Source Notes:
(1) “Eurasian Economic Community confirms Uzbekistan suspends membership,” 12 Nov 08, Interfax; OSC Translated Text via World News Connection.
(2) “AGREEMENT ON FOUNDATION OF EURASIAN ECONOMIC COMMUNITY (EAEC),” Article Thirteen, via <> accessed 20 Nov 08.
(3) Mikhail Zygar and Vladimir Solovyev, “Uzbekistan Withdrawing from Eurasian Economic Community,” 17 Nov 08, Kommersant; OSC Translated Text via World News Connection.
(4) “Uzbekistan could quit CSTO after leaving EurAsEc – expert,” 16 Nov 08, Central Asia General Newswire; Interfax via Lexis-Nexis Academic.
(6) “Single economic space agreement signed,” 19 Sep 03, RosBusinessConsulting via The Russia Journal Archives 1999-2005 via <> accessed 20 Nov 08.
(7) Ibid.
(8) “Uzbekistan Withdrawing from Eurasian Economic Community,” 17 Nov 08, Kommersant, Ibid.

By Monika Shepherd (



Obama’s first Ukraine test – Vanco vs. Tymoshenko?
During the presidential campaign, Vice President-elect Joe Biden famously suggested that an Obama administration would be tested internationally within its first six months. (1)  The McCain/Palin campaign quickly listed Ukraine as one potential test, with Vice-Presidential nominee Sarah Palin ominously warning of an imminent Russian invasion of Crimea.  More seasoned pundits, however, suggested that one particular “test” could come when President Obama is forced to decide whether to continue the US push in favor of NATO entry for Ukraine – and to a lesser extent, Georgia.

But, given the lack of support for NATO entry among Ukraine’s voters (between 20-30 percent in most polls), it seems unlikely that this will be the first serious decision President-Elect Obama will need to make regarding Ukraine.  Instead, he likely will be faced with a much lower profile issue, but nevertheless one that clearly will signal the direction of the Obama administration’s “Ukraine policy.”

This issue very well could be the ongoing international dispute involving Houston-based Vanco Energy Company over gas exploration rights on Ukraine’s Black Sea Shelf.  The way in which Obama deals with this problem could demonstrate whether the new president and his administration view Ukraine only through the prisms of Russia and energy supplies, or whether they see the country as a nascent democracy with the long-term potential to be a strong ally in Europe. 

As discussed in the 24 July issue of The ISCIP Analyst, the Ukrainian government “revoked and terminated” its Production Sharing Agreement (PSA) with an affiliate of Vanco International Ltd. - a subsidiary of Houston’s Vanco Energy Company – in May of this year.  The PSA had a 30-year span and reportedly could have involved up to 15 billion dollars of investments on Ukraine’s Black Sea shelf. (1)

Recently, a Ukrainian oligarch acting on behalf of Vanco’s position secured the high-powered Washington DC firm of Covington & Burling LLP to represent the company’s interests to US officials.  Covington’s lawyer-lobbyists include two individuals who worked in the Clinton administration.   These individuals, therefore, may be well-placed to secure US assistance either to overturn or undermine the Ukrainian government’s decision. 

If the US were to do so, however, this could signal acceptance of questionable business practices at a time when Ukraine is just beginning its struggle against an embedded culture of corruption.  In fact, the majority of companies involved in the deal are not US entities, and while a full independent examination of the Vanco agreement has not been completed, the information available creates concern over the way in which the deal occurred and is structured.

The termination of Vanco’s PSA came several months after the current government of Prime Minister Yulia Tymoshenko took office.  Upon examining the contract, the new government discovered that the rights for Black Sea Shelf exploration had been passed from the company originally awarded the tender, Vanco International Ltd (US owned, registered in Bermuda), to a brand new affiliate, Vanco Prykerchenska Ltd (British Virgin Islands).  Moreover, this new company was owned partially by an ally of former Prime Minister Viktor Yanukovych.  Mr. Yanukovych approved the PSA just weeks before turning his office over to Tymoshenko.   

Thanks to that approval, twenty-five percent of Vanco’s exploration rights were transferred to a corporation owned by billionaire oligarch Rinat Akhmetov.  The oligarch was and is a parliamentary deputy representing (and reportedly funding) former Prime Minister Yanukovych’s party. 

Akhmetov’s corporation, the Donbass Fuel and Energy Company, was only one of four entities with interest “in parity” in Vanco Prykerchenska.  Vanco International controls a 25 percent interest, as do Integrum Technologies of Austria, and Shadowlight Investments Ltd., linked to Russian businessman Yevgeny Novitsky.  (2)

Only Vanco International completed the tender process.  And only after the new government took office and demanded explanations did the ownership of Vanco Prykerchenska become somewhat more clear.  To this day, however, the ownership of Austria-based Integrum Technologies is obscured.  This mirrors the difficulty Tymoshenko had earlier in identifying the owners of Austria-based gas intermediary RosUkrEnergo.  Eventually, the owners were found to be Gazprom and a well-connected Ukrainian oligarch, Dmitri Firtash.

Novitsky’s interest in the deal also has been the subject of much discussion internationally.  Myroslav Demydenko suggested in the Eurasia Daily Monitor, “Evgeny Novitsky is alleged to be a member of, or very close to, Russia’s Solntsevo organized crime gang.”  (3)  These allegations are examined by David Satter in his 2004 Yale University Press book, “Darkness at Dawn – The Rise of the Russian Criminal State.”

The new government cried foul on the Vanco deal, claimed a conflict-of-interest, suggested several laws were broken in the tender process and terminated the contract.  Vanco Prykerchenska appealed to the Stockholm Court of Arbitration, and the two sides now have begun the long process of choosing international arbitrators and preparing their cases. 

Vanco International suggests that the PSA allowed it to assign its rights to its affiliate.  It is impossible to verify this claim since the PSA is not a public document, but there is no reason to question this statement.  (4)

A “Certificate of State Registration” viewed by this author clearly documents the transfer of rights, and is signed and verified by then-Vice Prime Minister Andriy Kluyev.  The former Vice Prime Minister is a high-ranking member of the Yanukovych-Akhmetov Party of Regions.  Therefore, while the correct documents were signed, the signature creates the impression – wrongly or rightly – that an individual (or individuals) connected to government officials benefited from the deal.

Now, US officials are being asked to become involved on behalf of Vanco Prykerchenska, which is 75 percent non-US owned and 25 percent owned by a Bermuda-based subsidiary of Vanco Energy Company. 

Interestingly, US involvement is not being requested by Vanco.  According to documents filed under the Lobbying Disclosure Act of 1995, Covington & Burling LLP was hired by System Capital Management (SCM), which, according to those same documents, is 90 percent owned by parliamentary deputy Rinat Akhmetov. (5)  It is unclear why Akhmetov chose to hire a lobbying firm through SCM, instead of through the Donbass Fuel and Energy Company, which is a party to the contract in question.

SCM is being represented by Ambassador Stuart Eizenstat, who served under President Clinton as the US Ambassador to the European Union and as Deputy Secretary of the Treasury.  The Ambassador also worked as the Special Representative of the President and Secretary of State on Holocaust-Era Issues, negotiating restitution agreements with numerous governments.

He is joined by Ambassador Alan Larson, an Under Secretary of State in the Clinton and George W. Bush Administrations, and current Chairman of the Board of Transparency International USA. (6)       

The stellar resumes and reputations of both men should assist Akhmetov in making his case to US government officials.  It is not known what exactly that case is, however.  Covington & Burling representatives were not able to discuss the issue when contacted.  Nevertheless, those close to the situation in Kyiv suggest that Akhmetov and Vanco representatives have asked US officials to condemn the Ukrainian government’s actions and to push Tymoshenko to reinstate the contract.  A Vanco Energy Company employee reached for comment denied this claim.  

But, earlier lobbying of US officials in Kyiv suggests Vanco and Akhmetov, in fact, are looking for US help against the government (or at least against the government’s case).  Shortly after the PSA’s revocation, the US Ambassador to Ukraine expressed regret over Ukraine’s decision.  “I am very disappointed that the Cabinet of Ministers today took unilateral action to revoke the Production Sharing Agreement [that] the Government of Ukraine negotiated with U.S. company Vanco,” Ambassador William Taylor said in a statement. (7) Later, when questions arose both about the true level of US involvement in Vanco Prykerchenska and about the deal itself, Taylor pointedly stopped discussing the case.

For her part, Tymoshenko served notice this week that she would not be bullied.  In a cabinet resolution on 19 November, the government reiterated that it would not pursue the PSA with Vanco Prykerchenska and continued to work toward arbitration. (8)

Tymoshenko is calling for an international investigation of the agreement that could encompass individuals in Austria, Russia, Ukraine and the United States.  She maintains that the PSA was the result of “a corrupt agreement concluded by the previous government.”  (9)  Vanco Prykerchenska, meanwhile, is calling for new negotiations. 

A number of individuals familiar with the issue are quick to note, however, that no one, including government officials, appears to fault Vanco Energy Company in this deal.  They point to the agreement as an example of how a US company can become immersed in Ukraine’s murky business environment, particular if high-powered political leaders are involved.  Nevertheless, Vanco’s perhaps unwitting involvement does not eliminate numerous questions about the company’s three non-US partners.

The Vanco dispute does not include Russia directly.  For this reason, officials associated with the new Obama administration may be tempted to give the issue little attention.  Worse, they may be tempted to depend on the information supplied by former colleagues or US businessmen associated with the deal.  If this occurs, it will be clear that Washington no longer views Ukraine as a potential democratic partner, but rather, intends only to pay attention if Russian interests are at play.

But the Vanco issue is at the heart of Ukraine’s rocky, chaotic transformation from an authoritarian state to a democracy.  Questionable business and political deals undermine the very core of a democratic government.  Transparency and fairness cannot exist if agreements are made in the dark.  This issue is one of the most important Ukraine will face in the near-term – far more important for the country’s development than a decision on NATO.

To be sure, there are no angels in Ukrainian politics and the Tymoshenko government’s decisions have produced plenty of their own questions over the last year.  Still, the government’s decision to “put a stake in the ground on this issue,” could send an important signal about intolerance for corruption in energy issues, if the issue is given the proper consideration by international officials.  (10)
Source Notes:
(1) The ISCIP Analyst, Volume XIV Number 14 (24 July 2008).
(2) Alexander Serafimovich, “Ukraine’s government says: Vanco go home!,” Oil and Gas Eurasia, June 08, No. 6 via and
(3) “Ukraine, Vanco Energy, and the Russian Mob,” Eurasia Daily Monitor, 16 Sep 08.
(4) Press Release, Vanco Prykerchenska Ltd, 12 Jun 08 via PRNewswire.
(5) Lobby Registration, Lobbying Disclosure Act of 1995, House ID 31827, Senate ID 11195, via and
(6) See website of Covington & Burling LLP at
(7) “Statement by U.S. Ambassador Taylor on Vanco Case,” Public Affairs Section, U.S. Embassy, 21 May 08.
(8) Unian News Agency, 1843 CET, 19 Nov 08 via
(9) BYuT Inform Newsletter, 22 Jul 08 via email to author.
(10) Ibid.

By Tammy Lynch (


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