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Thursday, January 11, 2007

Frosty Congress on collision course with Moscow

The Financial Times reports on the Kremlin's total alienation of the American government and the onset of Cold War II.

The Bush administration's relationship with the Kremlin has chilled considerably since the moment in 2001 when the US president famously looked into the soul of his Russian counterpart and declared that Vladimir Putin was "very straightforward and trustworthy".

And Washington's stance towards Moscow could become even more frosty in coming months, potentially colliding with expected attempts by Russia to use its new found oil and natural gas wealth to step up its investment in the US, including the expansion of Gazprom, its national energy group, into the US market.

For years most lawmakers in the Republican-controlled Congress have taken the White House's lead in their stance toward Russia. Now experts predict that mounting concerns on Capitol Hill, on issues ranging from Mr Putin's commitment to democracy to questions about the security of western investments in the Russian energy sector, could see lawmakers taking a more robust, sceptical approach.

Barney Frank, the Democratic lawmaker who, as chair the House financial services committee has an influential voice on foreign investment issues, exemplified the expected change in tone last week in a speech to the National Press Club.

In remarks that extolled the "absolute security" of the US market, Mr Frank took a shot at the Kremlin when he remarked: "Where do you want to invest? Russia? So Putin can steal your company?"

The 2008 presidential race could also colour relations with Russia. Two of the Kremlin's most vociferous critics are contenders for the White House: Democrat Joseph Biden who heads the Senate foreign relations committee and John McCain, a favourite to win the Republican nomination.

The defeat in the recent mid-term elections of Republican congressman Curt Weldon, a staunch defender of the Kremlin, and the ascension of Democrat Tom Lantos to the top ranks of the House international relations committee, are also likely to renew the focus on allegations of human rights abuses in Russia, including the controversy over the forced sale of Yukos, the energy group, and the imprisonment of Mikhail Khodorkovsky, its former chief executive.

One Democratic Senate source said Russia had been "flying under the radar screen" because Washington had largely focused its attention on Iraq, Iran and North Korea, but that concerns had become increasingly hard to ignore.

"To some extent, it's not our business to regulate the Russian economy, but to the extent they use their control over the Russian economy to affect countries that are close friends and partners, that's something we care about," the person said. "I would hope that we don't respond to bad behaviour with protectionism of our own but one can't discount that option entirely."

One Washington business lobbyist, noting the recent storm over Shell ceding control of its Sakhalin-2 oil and gas project in Russia to Gazprom, agreed: "I wouldn't be surprised if Russian investment in the US was subject to higher political attention in Congress given that Russia has basically expropriated western investments."

Marshall Goldman, associate director of the Davis Center for Russian Studies at Harvard, says Russia has $300bn in cash "rolling around" and that the recently proposed $2.3bn takeover of Oregon Steel by Evraz, a Russian steel group, is "just the beginning".

"I think we have to learn there really isn't much to restrain them. But if they engage in these kinds of games, people can play them too," Mr Goldman says.

Ultimately, Congress's ability to affect the US government's overall relationship with Russia will be limited. Critics will not have a formal vote, for example, over an agreement hatched by the White House that paves the way for Russia to join the World Trade Organisation. However, lawmakers could seize an expected request by the White House for Congress to repeal the 1974 Jackson-Vanik amendment as an opportunity to air broad grievances. The amendment subjects Russia's trading status to annual review and must be repealed in order to give Russia permanent normal trade relations.

Don Evans, who served as commerce secretary during Mr Bush's first term and who last year turned down a top position at Rosneft, the Russian energy group, offered to him by Mr Putin, said in an interview with the Financial Times that Russia's inclusion in the WTO would ultimately foster greater understanding between it and the US and would help integrate Russia into the global economy.

"The issues people want to point to all the time will be a few cases within the [Russian] energy sector that get all the attention," said Mr Evans, who heads the Financial Services Forum, banking lobby group.

"But all the American companies that are providing other services and goods . . are doing very, very well."

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