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Saturday, November 03, 2007

How Russians "Think"

AFP reports a classic example of how Russian "think" -- like the mafia. Russia wants the German airline Lufthansa to use a Russian airport instead of one in Kazakhstan as its Asian hub. But instead of making a sales pitch, improving the target facility to make it more attractive and finding out about Lufthansa's needs and satisfying them, Russia simply takes out a gun. It tells Lufthansa that it can't use Russian airspace to access the hub in Kazakhstan, vastly increasing the carrier's fuel and time costs. We've seen exactly the same thing in regard to Russia's inflation crisis: the crude Russian thug thinks he can "solve" the problem by brute force, simply telling producers they can't raise prices. Childish, self-destructive lunacy. Classic Russia.

Russia is trying to force the German airline Lufthansa to move its Asian cargo hub from Kazakstan to Siberia, the Financial Times Deutschland reported Friday after cargo flights were banned from Russian airspace. "We wrote to our German colleagues on October 22, proposing that they use Krasnoyarsk in Siberia as a future hub," Russian transport ministry spokesman Timur Chikmatov told the newspaper. Lufthansa Cargo, one of the world's biggest air cargo carriers, now uses Astana, Kazakhstan as its base for Asian services, but was barred from entering Russian airspace on Sunday, adding several hours to flights headed there. "The Russian government would like to see our hub in Siberia," a Lufthansa Cargo spokesman told AFP, adding that Novosibirsk was another airport that had been suggested. The detours have increased the carrier's fuel costs by about 400,000 dollars (280,000 euros) per week, and Lufthansa warned its profits could be affected. Talks between Germany and Russia have begun on the issue, and the airline spokesman said: "We are waiting for politicians to find a solution." But the government has also said it could turn to the European Union for help if nothing is worked out soon. German press reports had said previously that the dispute centered over new overflight tariffs that had taken effect with a winter schedule on Sunday. According to the Financial Times report, Lufthansa Cargo also has doubts about safety at Siberian airfields. Krasnoyarsk, which lies around 1,500 kilometers (940 miles) to the east of Astana, reportedly lacks guides for fog-bound landings, the newspaper said. A Lufthansa spokesman told the online edition of Der Spiegel magazine: "Russia's ban is causing us huge losses, because it means that we have to reroute flights to Japan, China, North Korea and Singapore. It takes a lot longer and costs a lot of money." The German transport ministry spokesman said Thursday: "We would like to know if other countries have problems, and if necessary we will go to the European Union."


Anonymous said...

"How Russian's Think"? Hmmm. So this is an anti-Russian blog? Russophobic? Russia is criticized for wanting European air carriers to comply with its rules when doing long overflights over Russia's Siberia region. But I just read the other day that the UN held another vote, and for the 16th time in a row the UN voted to condemn the 50-year old US "economic blockade" against Cuba. The actual vote tally was 184 nations to 4. The only nations voting with the US were Israel--whose position represents reciprocity for the nearly unbroken record of US votes against resolutions condemning Israeli aggression against the Palestinians as well as in Lebanon and elsewhere-- and two US South Pacific protectorates, Palau and the Marshall Islands, with a combined population of about 80,000. The Bush administration, far from moving to ease the half-century-old sanctions against the helpless island nation, recently made the sanctions even stronger. Now not only will US companies be barred from doing any business in Cuba, but any foreign company that does business with Cuba will therefore be barred from doing US business as well. I know Bush rants and raves about "freedom" (as if he has any right to lecture anyone, in the wake of the US Iraq fiasco). But "freedom" and "human rights" have nothing whatsoever to do with it. The US persecution of Cuba is transparently 100 percent a political persecution. The US has happily supported dictators far worse than Castro and is doing so today. But it's only Russia, and apparently the Russian people (who support Putin with an 80 percent approval rating) who are the "bad guys" in the world in 2007. Absurd!

Anonymous said...

The communists who seized power in the Russian Empire in 1917 Bolshevik revolution were not all ethnic Russians, nor even mostly ethnic Russians. The majority of them were Jewish, as has been well documented. It may not be politically correct to say that, but it does not change the fact that it is absolutely correct to say it. Joseph Stalin, who is the man most associated with the excesses of communism in the old USSR, was not a Russian, but himself a Georgian man, as was Stalin’s hated head of the secret police, the NKVD. It’s more than a little ironic that the modern Russian Federation is supposed to carry all the guilt of 70 years of communism on its own shoulders, alone, when in fact Russia was only one of the 15 nations who were enslaved and victimized by the Bolshevik system. Every other former Soviet Republic is now trying to redefine its nationhood in terms of being a “victim” of Russia and its evil communism, and the US is opportunistically encouraging that. In fact Russia was a victim of Bolshevik ism too, and Russia will not allow anyone trying to lay the blame for communism at its doorstep. The Russian Federation alone has already assumed the entire massive debt of the former USSR, even though those debts were incurred for the benefit of the entire USSR, not just the Russian Federated Socialist Republic. For example, the wheat and other US agricultural commodities which were purchased with US “farm credits” went into the bellies of Ukrainians, Latvians, and Kazaks no less than Russians. But Russia alone assumed all of the debts of the former USSR, and has used its energy wealth to pay about 80 percent of these debts off already, and the rest is soon to follow. The argument could well be made that the USSR itself was a system that forced Russia to massively subsidize the other 14 republics of the USSR, and the entire Eastern European Block, with Russia's vast mineral resources, especially with regard to Russia's energy resources. Now the USSR is dissolved. It no longer exists, in case you people missed the news. the Russian President, Vladimir Putin, wit 80 percent plus approval ratings--source Gallup--has said, “Russia does not need anyone else's land… Russia already has enough land.” But Russia is no longer selling crude oil and natural gas for the equivalent of $1.50 a barrel (in Soviet Rubles) to the former Soviet Republics and eastern block nations. Now Russia is finally demanding that they pay the going rate, full market prices, like everyone else does. Of course this is viewed in Washington as “using energy as a weapon”, which is ridiculous, and typical. One of the main obstacles to Russia joining the World Trade Organization (WTO) has been the fact that Russia sells oil and natural gas within its domestic market at a below market price. This is said to give Russian producers in energy-intensive industry (such as steel and other metals) an “unfair trade advantage”, because Russian producers can get energy at below-world-market prices. In response Russia has announced plans to allow its domestic energy prices to rise to world market levels, over a reasonable transition period. But now Russia is supposed to continue to subsidize the inefficient energy-intensive industries of such places as the Ukraine, which wastefully use Russian energy and derive an unfair advantage from having access to below-market-price energy resources. If Russia protests, and says that these former Soviet states (and allies) should also pay market prices, the same rate that everyone else pays, and the same rate that Russian businesses and consumers must pay, then Russia is supposely “using energy as a weapon”. Never mind that the USSR ceased to exist as a state and an entity almost two decades ago, and many of the new governments in this former Soviet space are openly anti-Russian, and trying to carve out a political identity for themselves as somehow “victims” of Russia or “Russian communism”. There is indeed a “new world order”, as Bush the elder pointed out. But it may not be the world order that the US desires. Too damn bad! If the US thinks that the former eastern block countries deserve energy resources for pennies on the dollar, then let the US provide that subsidy, and pay Russia the difference between the market price for energy resources and whatever the US thinks these countries should be charged. The U.S. GDP is ten times larger than the Russian GDP, so the US is certainly in a far better position to provide such massive subsides than Russia is (estimated at about half a trillion dollars, since the end of the USSR, in total). The Russian Federation is finished subsidizing these nations. They are now the problem of the West and the US. The last thing on earth that Russia is trying to do (and Putin least of all) is to somehow recreate or resurrect Soviet-style communism. It's people like The thoroughly incompetent US president George W Bush, Miss Condoleeza Rice, and Dick Cheney who long for a return to the "good old days" of black and white, "good vs. evildoers". But now that the main idealogical factor of communism is removed from the scene, the the neo-con right wing whack-jobs are desperately trying to fashion an anti-Russian consensus based strictly on Racial or ethnic hatred of the Russian people (as the existence of this blog attests). Just stick to your war on terrorism, and whipping up public hatred for the Arab and Islamic people in the world, okay? Russia wants no part of a new Cold War or a new arms race. That ought to make enough new enemies for the US for the next few decades that you do not need Russia as an enemy too. Russia will not be dictated to by the USA. Get over it already! Move on and find something useful to do with your life, if that is possible.

american for jesus said...

From the apparatchiks' comments above, it should be pretty clear that Russophiles and Russians are indeed obessesed with Yuri Andropov's image of the "Zionist Nations", and love their anti-Americanism and Jew World Order conspiracy theories dearly.

Hate to break it to them, but Alexander Dugin, Vladimir Putin, Viktor Bout, the Varangians, Lenin and Stalin are/were sociopaths.

Anonymous said...

....and not a word on the wisdom of blocking Lufthansa's cargo flights from the "anonymous" psycho above.

Misha said...

My name is Misha, not Anonymous.

During Soviet times there were a few western flights to major cities, such as St. Petersburg and Moscow, but western flights across most Soviet airspace, especially across Siberia with its many military installations, were strictly forbidden. But of course the modern Russian Federation is not the old Soviet Union. Today many things are happening in Russia that would have been unheard of during Soviet times. Today western airlines are allowed to overfly Siberia, in accordance with negotiated arrangements between western air carriers and the government of the Russian Federation. Of course these overflight rights save western airlines millions of dollars annually in fuel and operating costs. The Siberia region of the Russian Federation, with its large landmass, is simply the most convenient and cost-effective route in the growing Europe-Asia air cargo and passenger markets. If you want to fly between Europe and Asia, then the Siberia region of the Russian Federation is the fastest and most economical way.

In the original post in this thread we read the quote of a Lufthansa spokesman: "Russia's ban is causing us huge losses, because it means that we have to reroute flights to Japan, China, North Korea and Singapore. It takes a lot longer and costs a lot of money." It is apparent that having overflight rights for the Siberia region of the Russian Federation gives air carriers an enormous commercial advantage, saving them millions of dollars annually. Again here is another quotation: “The detours have increased the carrier's fuel costs by about 400,000 dollars (280,000 euros) per week, and Lufthansa warned its profits could be affected.”

Therefore, it is understood that having the right to travel across Siberia is so economically valuable for Western air carriers. But who has the right to determine the terms and conditions of such overflights? Of course it is the government of the Russian Federation, which has sovereign control over the airspace above Siberia. It is the Russian government that will decide who gets to overfly this airspace and on what terms. The Russian exercise of sovereign control over its own airspace and overflight rights is not some strange eccentric or unjustified behavior on the part of the Russian state alone, but every country in the world controls the access to its airspace in the same manner, in accordance with its perceptions of its own self-interests.

It should be kept in mind that here we are speaking about flights which neither originate or terminate in Russia, and which thus provide no economic benefit for Russia itself, except for whatever fees and other considerations the Russian Federation can obtain in exchange for these valuable overflight rights. Perhaps if the European carriers at least based their Siberian hubs in Russia, there could be a market for refueling the aircraft and some Russian jobs could be created at the Russian hubs.

If, as the Lufthansa representative says, flying over Siberia saves his company “400,000 dollars per week”, then even from a strictly commercial standpoint Russia would be right to demand up to $400,000 in weekly revenues for these overflight rights. It is understood that if Russia demanded $500,000 weekly from Lufthansa, it would not be worthwhile for the airline (which is only saving $400,000 weekly). On the other hand, if Russia demanded $300,000 or even $350,000 weekly, it would still leave the airline in the position of saving $50,000 or $100,000 per week, and it would still be worthwhile for them (or such an advantage might be offered to their competitors). Certainly we can imagine that Lufthansa would prefer to pay the Russian Federation nothing for these valuable overflight rights, and simply put the entire $400,000 savings in their back pocket. But one can hardly blame the Russian side for wanting to maximize the benefits to itself, given that it is the use of Russian airspace that confers these commerical advantages.

Russia could have demanded the airlines pay the full economic value of Siberian overflights in the form of cash, as I describe above. But instead Russia is tying to create a viable air transport industry and air infrastructure across Siberia. Therefore the Russian side has demanded that western carriers who overfly Siberia should operate out of Russian hubs, not foreign hubs. Perhaps this might require some improvements in infrastructure, but these are merely technical problems which could be solved. The position of the Russian partners is that if the western airlines want to fly over Siberia then they should use Siberian hubs. If the airlines wish to use hubs in Kazakhstan, of course that is their right, and Russia has no basis to interfere. But in that case they will not be granted the right to overfly Siberian airspace, and to gain the benefit that such overflight rights confer.

To me this does not sound like much more than hard-nosed commercial bargaining, and the essential issue here is commercial and technical in nature. This dispute certainly should not be made the subject of an “international diplomatic incident”, as it would serve no ones interests to move in such a confrontational direction.

Lufthansa wants the right to overfly the Siberia region of the Russian Federation on its Asian routes. The Russian federation has sovereign control over that airspace and can grant that right to whomever it choses, on whatever terms it decides are appropriate. So far we only have a commercial disagreement between two partners. The two partners are at odds, and unable to come to a mutually agreeable terms for the use of this valuable Russian asset.

I view this dispute over Siberian overflight rights as a relatively trivial incident, and I expect that the partners will soon settle their differences and come to some mutually agreeable commercial terms. Nevertheless, even though this is a rather “minor” issue, it is useful to analyze this dispute over Siberian overflight rights, because, in this latest dispute, we can see the more general outline of most of the disputes between the Russian Federation and the EU. The general outline of such disputes is of course that most of these disputes center on disagreements over the essence of Russian sovereignty, and the proper use of that sovereignty.

For example, consider the disputes in the sphere of Russian energy, which is a sector that is arguably far more important for both sides than these Siberian overflight rights. But here again, in the energy sector, we discern a fundamental clash between the EU and the Russian Federation. The European Union has been pressuring Russia to ratify the so-called Energy Charter. This EU Energy Charter would bind Russia to essentially liberalizing its energy sphere. Russia would be required to allow foreign (European) investment in its energy extraction and energy transportation sectors. Furthermore, the Europeans would be free to build pipelines across Russia which would bring Central Asian (Caspian) oil and gas to Europe’s doorstep. This oil and gas of course directly competes with Russia’s own oil and gas, which are mostly marketed in Europe.

So far Russia has refused to ratify the Energy Charter and is unlikely to do so in the foreseeable future. The main reason is quite simply that Russia views the agreement as one that would undermine Russian economic and commercial interests.

Of course Russia is aware that alternatives to Russian energy exist, and if Russia charges too much for the extraction or transportation of energy, that the Europeans have other alternative sources of supply. But such sources all pose particular problems. In the first case building a distribution network that circumvents Russia would be very costly, and all such routes must pass through countries that are arguably less stable and less secure than Russia itself is. So in the sphere of energy, Russia has something of a monopoly, but it is more of a margin monopoly than an absolute monopoly. That is, Russia's monopoly only exists within certain margins. Beyond those margins it would make sense for the Europeans to develop alternative sources of supply, as everyone understands. But within the margin of the Russian energy advantage, the Russian state has been essentially engaged in rent seeking behavior, which is designed to transfer the bulk of the economic benefit that accrues from Russia’s competitive energy advantage into a benefit for the Russian state and larger society, instead of only a benefit for the Western countries and their huge well-capitalized energy companies.

It is easy in this instance to dismiss the European desire for Russia to liberalize its energy production and transportation spheres, and simply allow unlimited western investment in these sectors. The large and well-capitalized western energy companies could import advanced technology, to streamline the energy sector. But all such benefits from this exploitation would accrue to these companies and to the European countries. This is an instance where the “free market” simply is not in Russia’s interests.

The modern Russian Federation is not making plans to attack any country or mass its tanks for an invasion. Rather Russia is simply using the advantage comes from having 1/6 of the world’s landmass within its borders. Russia uses Russian sovereignty in the way calculated to generate the maximum benefit for Russia. It is one thing for a country to lecture Russia about what its own (Russian) interests are. But it is quite another thing to insist on seeing some Russian "misbehavior" every time the Russian Federation politely ignores these western lectures and insists on defining its own interests according to its own analysis.

Russia is a sovereign nation. The days of communism and the Soviet Union may be gone for good, but Boris Yeltsin is gone too, and he will not return. Russia is not a member of the EU nor does it aspire to become a member. Russia would prefer to be inside the World Trade Organization (WTO), however it must be said that such membership would present Russia both with new opportunities as well as new challenges and obligations, which it does not currently have.

The Russian state is capable of formulating its policies based on its own analysis of its interests. No relations will be possible with the Russian Federation other than on the basis of taking Russian interests into account. Get over it.