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Friday, June 22, 2007

The Georgia Failure: Putin's Waterloo?

Bloomberg reports on what may well come to be seen as one of the most sensational failures of the Putin regime, alienating Georgia and driving it into the waiting arms of NATO. Putin's crude, thuggish tactics backfired and Georgia is now the poster child for resistance to the neo-Soviet Union, exposing Russian weakness as it drives out Russian forces without firing a shot and welcomes NATO forces to replace them.

The white marble Stalin museum in Gori, Georgia, the dictator's hometown, will soon be overshadowed by a new attraction: a military base built to train Georgian troops for NATO missions. Gori's transformation from Soviet pilgrimage site to an outpost of the U.S.-led military alliance underscores Georgia's drive to sever its ties to Russia. Georgia's determination to assert its independence, and its location between oil-rich central Asia and the Black Sea, has made it a conduit for energy shipments to world markets. International investors are pumping more than $3 billion into Georgia to build pipelines, ports and refineries that will allow oil and gas from Azerbaijan and Kazakhstan to bypass established trade routes through Russia. That has angered the Kremlin, which last year imposed a trade embargo on Georgia.

"There is no alternative'' for the countries of central Asia, President Mikheil Saakashvili said in the capital, Tbilisi. "Considering that Russia is on one hand their partner but also their competitor, they have an obvious interest in having an alternative -- the Black Sea corridor." Georgia is the most dramatic example of the geopolitical shift taking place in the former Soviet Union. From Estonia in the north to Azerbaijan in the south, Russia increasingly is confronted by former Soviet republics that are expanding links to the U.S. and Europe. That has sparked a backlash in Russia, with President Vladimir Putin decrying the expansion of the North Atlantic Treaty Organization and U.S. plans to build a missile defense system in Eastern Europe.

'Real Outliers'

"Georgia and the Baltic states are the real outliers, and the Russians have gone out of their way to be really nasty with all of them," said Andrew C. Kuchins, director of the Russia and Eurasia program at the Center for Strategic and International Studies in Washington. By punishing Georgia and the Baltics, the Kremlin is trying to reverse the drift toward the U.S. among other former Soviet republics, he said. Georgia, a nation of 4.6 million people on the eastern shore of the Black Sea, was ruled by Russia for most of the period from 1801 until it declared independence in 1991. The country cemented its turn to the west in 2004, when Saakashvili replaced former Soviet boss Eduard Shevardnadze and pledged to steer the country toward membership in NATO and the European Union. Russia opposes Georgia's bid for NATO membership. The Baltic states of Estonia, Latvia and Lithuania have already joined the alliance, and Ukrainian President Viktor Yushchenko wants his country to join.

`Not a Fan Club'

"NATO is not a fan club of democracies; NATO is a military bloc, a military and political alliance," said Andrei Denisov, Russia's first deputy foreign minister. "With all these hectic activities to engage Ukraine and Georgia into NATO, to have these half-baked members in NATO, what should we feel?" Yet Russia can't afford to antagonize Georgia. Putin wants Russia to enter the World Trade Organization before he leaves office next May. Admission requires treaties with each member state, including Georgia. A first round of talks broke up last month without agreement. Saakashvili says he's wants the Kremlin to let Georgia install customs control points in Abkhazia and South Ossetia, two breakaway regions controlled by Russia. "I want to see what Georgia gets to sign off on WTO," Clifford Isaak, managing director for the Caucasus region at PricewaterhouseCoopers, said in Tbilisi. "Unless Georgia gets something big it is not going to happen."

Economy Booms

Divorce from Russia hasn't condemned Georgia to economic collapse. The country's gross domestic product grew at an annual rate of 13 percent in the first quarter, driven by international investment and trade with western Europe. The government is reducing taxes, cutting red tape and adopting pro-investor policies, according to the American Chamber of Commerce in Tbilisi. "The corruption has more or less disappeared from the traffic police, from customs," said Esben Emborg, president of the chamber and general manager of Nestle SA's local unit. "This is a much more level playing field than it used to be. Anyone who runs a serious business will do well." Last summer, London-based BP Plc started pumping 800,000 barrels of oil a day through a 1,116-mile pipeline that stretches from Azerbaijan through Georgia to Ceyhan on Turkey's Mediterranean coast. Separately, BP and Norway's Statoil ASA are shipping 1 million cubic meters of gas a day from Azerbaijan to Georgia, replacing 20 percent of imports from Russia. By December, the pipeline will be linked to Turkey and through it to Europe.

Energy Corridor

"Georgia is in a critical position in the East-West energy corridor," said David Glendinning, a spokesman for the BP Plc venture that built and now operates the pipeline. "The East-West energy corridor is a reality." Azerbaijan and Kazakhstan, just across the Caspian Sea, have more than 46 billion barrels of oil reserves, 59 percent of those in Russia, the world's largest energy exporter, according to BP. On May 25, Georgia approved a $1 billion oil refinery that KazMunaiGaz, a Kazakh state-owned oil and gas producer, plans to build at Batumi on the Black Sea coast. The State Oil Company of the Azerbaijan Republic plans to build a similar project. "We would like to get gas and more supplies of oil from the Caspian Sea region," European Energy Commissioner Andris Piebalgs said April 30 at a press conference in Brussels, where he spoke alongside Georgian Foreign Minister Gela Bezhuashvili. "Georgia is ready to provide the necessary supply corridors toward the European Union."

Highways, Ports

Near Gori, where a medieval fortress overlooks the vineyards that produce Georgia's famous red wines, crews are paving the first stretch of a 600-mile, four-lane highway from Azerbaijan's capital, Baku, to Batumi. Work is also starting on a railroad linking Georgia and Turkey. Outside the Black Sea town of Poti, Georgian officials plan to create a free economic zone, reducing most taxes to zero to spur development. Earlier this month, the investment authority of Ras Al Khaimah, one of the seven members of the United Arab Emirates, agreed to develop the project. The authority is preparing a master plan for what could be a multibillion dollar port, industrial zone and power project, said General Manager Raman Iyer. "This is traffic basically across the Silk Road, traditionally the road from Asia, toward the Middle East and Europe," Saakashvili said.

Russian Embargo

Georgia's emergence as a competitor helped prompt Russia to crack down on its former colony last year. Russia cut all travel and import links, citing Georgia's expulsion of Russian soldiers accused of spying. It also deported about 4,000 of the estimated 1 million Georgians working in Russia, mostly for alleged visa violations. OAO Gazprom, Russia's state-controlled gas export monopoly, raised prices to $235 per 1,000 cubic meters, four times 2005 levels, as part of a plan to phase out Soviet-era "friendship pricing."

The trade ban taught Georgians to look elsewhere.

"We were concentrated too much in Russia," said Badri Japardize, whose Borjomi mineral water brand lost $20 million in Russia last year. "We are reallocating our resources to the Baltic states, U.K., Kazakhstan, Azerbaijan. Our U.S. sales have gone from 20,000 bottles to 3 million." Looking south, Georgia dropped visa requirements for Turkish citizens last year, and Turkish Airlines now treats Georgia's new airport in Batumi as part of its domestic network. While the Russian flag is almost invisible in Tbilisi, the blue and gold European Union flag is everywhere. "This is a way of preparing people to think of themselves as Europeans," Nestle's Emborg said.

George Balanchine Street

U.S. influence is on display at a new $62 million airport terminal in Tbilisi, where the gates are emblazoned with the English words "Welcome to Georgia." Taxis traveling to the new Marriott Courtyard hotel head down George W. Bush Street. At the corner of George Balanchine and John Shalikashvili Streets, two boulevards recently named for prominent Georgian- Americans, stands the new U.S. embassy, a $56 million building where 480 people work. On May 2, the U.S. Navy destroyer USS The Sullivans conducted exercises with the Georgian Navy on the Black Sea, for 150 years a Russian lake. On the same day, General David McKiernan, commander of the U.S. Army in Europe, arrived in Georgia to watch U.S.-led military exercises. Georgia's success in distancing itself from Russia may teach the Kremlin to moderate its stance toward the new nations on its fringe, said Thomas de Waal, Caucasus editor of the London-based Institute for War and Peace Reporting.

Waning Russian Influence

"Russia is rich, but it is losing its influence heavily in the South Caucasus -- it is relying disastrously on hard power," he said by e-mail. "The Russian blockade has pushed Georgia further into the American embrace, and Russia is doing nothing to cultivate its major asset in the region, the Russian language." Back in Gori, one mile from the museum marking Stalin's birthplace, a Turkish-Georgian company is building a military base that will comply with NATO standards and house a brigade of Georgian troops. Nearby, a billboard displays a photograph of Saakashvili and Bush shaking hands.


Brian H said...

I made the mistake (?) of reading "Russia Crumbles" before digging in to more of your recent postings. It gave such a sense of unreality and weirdness to all the reports, I had to keep shaking my head to separate the news from the projection.

I hope more ex-client states are smart enough to read Georgia's experience rightly: getting cut off by Russia is the biggest favour it can give -- much bigger than oil shipments!

Anonymous said...

This is Hector

This stupid bickering about NATO expansion eastward and Russia being threatened by this is nothing more that an interimperialist rivalry. Russia wants to keep its troops in Georgia for its own interests while NATO wants it as a gateway for the Caucasian oil fields. Denisov is right about NATO, a fan club. It is a powerful imperialist military alliance ran by the USA to achieve global domination. Each of the ruling classes in NATO are members for their piece of the pie from the U.S government, like a bunch of lap dogs.

Anonymous said...

It is right to note that Russia tried similar tactics against Estonia in the 90's, what did this lead to? Estonia reorientated its economy westward and became a very successful country, and later on joined NATO and the EU - it is obvious that looking at this example that FSU countries should adopt a similar strategy as Georgia is now doing. Russia is a parasite, nothing more nothing less, on these small countries. It is also interesting to note that despite Russian sanctions Georgia's (like Estonia's before it) GDP is growing a rate of almost double Russia's GDP growth, and thats real GDP growth not resulting from natures gifts. Makes Russia look incompetent and pathetic really.