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Thursday, May 18, 2006

The Dancing Bear

The Times of London's Gary Duncan nails Russia policy to at "T" with the following penetrating analysis:


BEHIND the high walls of the Kremlin this weekend the stage was being set for what is likely to be the edgiest summit of the Group of Eight nations in years. As the summit “sherpas”, the top officials who lay the groundwork for these gatherings, flew into Moscow, tensions between the Russian hosts and the remaining G8 members, the Group of Seven big Western economies, were running high.

The unease among the G7 powers over their decision to hand President Putin of Russia the honour of presiding over the impending summit in St Petersburg in July surfaced in dramatic fashion last Thursday. In a ferocious broadside against Moscow delivered in Vilnius, the Lithuanian capital, Dick Cheney, the US Vice- President, left little doubt about the growing Western anxieties over Russia’s deepening slide into authoritarianism and its willingness to use its vast oil and gas reserves as a political weapon.

In Washington’s most forceful public rebuke to Mr Putin, Mr Cheney accused the Kremlin of using its energy supplies as “tools of intimidation and blackmail”. Moscow’s opponents of reform were, he said, “seeking to reverse the gains of the last decade”, with the Russian authorities having “unfairly and improperly restricted the rights of the people” in areas of society, from the media to religion and to politics.

The kneejerk reaction to Mr Cheney’s remarks in some Western capitals no doubt will be that it is another example of the Bush Administration’s tactless “cowboy” approach to diplomacy and a symptom of the Vice-President’s personal history as a hardline veteran of the Cold War era.

Yet in reality Mr Cheney’s decision to resort to a blunt declaration of American and Western impatience with Russia’s actions is exactly the right move, and sets an example that should be followed by the rest of the G7. Eager to enlist Mr Putin’s assistance, the West’s leaders have sought to entice his co-operation through appeasement, cuddling up to the Kremlin even as it has retreated from reform and recanted on its commitment to democracy and the rule of law.

The West’s reward for this supine posture has been a steady deterioration in Russia’s behaviour. An emboldened Moscow has grown bolder still and more capricious in its interference in neighbouring states, more brutal in its suppression of internal dissent, more aggressive in its domination of the Russian media, more shameless in its erosion of multi-party democracy and more contemptuous of co-operation with the West. These are hardly the actions that might be expected from a member of the G8, supposedly a club for the world’s most important liberal economies.

That it is long past time for Europe and America to say “enough is enough” has become starkly apparent from developments in recent weeks.

Mounting disquiet among Western investors surfaced in the City last month in a backlash against plans for a $10 billion (£5.4 billion) flotation on the London Stock Exchange of Rosneft. Some Western institutions might be have been content that this Russian oil giant was created mainly through the controversial state seizure of the assets of Yukos, the energy group once controlled by Mikhail Khodorkovsky, the jailed oligarch. Others were not so sure.

F&C, a leading UK fund manager, delivered a bold denunciation of Russia’s dubious corporate governance regime. So long as this remained opaque and incomprehensible, investors ought to steer clear of the unacceptable risks posed by taking any stake in Rosneft, F&C said. George Soros, the billionaire investor, weighed in with a warning that the float would “raise serious ethical and energy security issues” and risked legitimising Moscow’s expropriation of key parts of Russia’s oil and gas industry.

It is clear that the impending G8 summit, and before that next month’s meeting of G8 finance ministers in St Petersburg, need to herald a sharp change of tone in the West’s dialogue with Russia. The feeble tactics of conciliation need to be replaced by a firm and united insistence that Mr Putin meet his obligations.

It is obvious, of course, that the Russian bear will not dance to the West’s tune just because the volume of its demands is turned up. Confrontation will not persuade the Kremlin to conform to Western expectations. To secure co-operation from Moscow, America and Europe must instead persuade President Putin that it is down that road that his own, and Russia’s, best interests lie; he is nothing if not the arch- practitioner of realpolitik.

The key to this argument goes back to Russia’s vast energy reserves. Sure, these are the source of huge political and economic power. But they also betoken the vulnerability of a country that is reliant on this one resource as the foundation of a large part of its influence in the world and of its future prosperity.

Russia needs Europe as a customer for its energy just as much as it Europe needs the fuel. And with oil and gas accounting for 30 per cent of Russian GDP (and rising) and 70 per cent of its export earnings, Moscow desperately needs to diversify its economy.

A broader economic base would help to fulfil President Putin’s ambitions for Russia to play a prominent and powerful role in global politics and diplomacy. Just as it crucial for the Kremlin, a more diversified economy would enhance Russia’s ability to deliver the rising prosperity that its people expect, and diminish the danger that poor living standards will lead to social and political turmoil.

To foster this more diverse economy, however, Moscow needs the West — for expertise, for investment capital and for access the biggest markets in the world. The G7’s message to its host in St Petersburg must, then, be a simple one: that the price of these assets is for Russia to preserve and enhance democracy and the rule of law rather than return to repression. It is a point that should be made to President Putin with crystal clarity.

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