Resurgent Russia

Print edition : August 11, 2006

The G8 summit proves that the West needs Russia more than Russia, with its vast oil reserves and booming economy, needs the West.

VLADIMIR RADYUHIN in Moscow

AT THE FIRST trilateral summit, Chinese President Hu Jintao, Russian President Vladimir Putin and Prime Minister Manmohan Singh in the Konstantinovsky Palace, the venue of the G8 summit.-ALEXANDER NEMENOV/AFP

NO other Group of Eight summit grabbed so much public attention in Europe and North America as the St. Petersburg summit held from July 15 to July 17. It was not the agenda that created the stir but the fact that it was the first G8 meeting hosted by Russia.

For months leading up to the summit, the media and politicians in the West debated the question of whether Russia deserved to host the event, or, be a member of the group at all. The answer was an emphatic no. Russia, critics said, was first invited to sit at the G7 table in 1992 as a reward for President Boris Yeltsin's market-oriented and pro-democracy reforms. (Cynics said it was a condolence prize to Yeltsin for the expansion of the North Atlantic Treaty Organisation.) In 2002, President Vladimir Putin was awarded the rotating presidency of the G8 for 2006 in the hope that he would carry on with the pro-Western policies of his predecessor. But he has belied those expectations.

On a visit to the former Soviet state of Lithuania earlier this year, United States Vice-President Dick Cheney accused Russia of "unfairly and improperly restricting the rights of her people" and using its oil and gas as "tools of intimidation or blackmail". It was the harshest attack on Russia by a Western leader since the Cold War. Less than a month before the G8 summit, four leading U.S. lawmakers, including 2008 Republican presidential hopeful Senator John McCain, in an open letter to world leaders, called on them to rebuke Russia's leadership in St. Petersburg for actions "inconsistent with G8 democratic norms" and for steering Russia "away from democracy and toward authoritarianism".

Influential voices in Washington said that gathering for an energy security summit in St. Petersburg was tantamount to holding a nuclear disarmament conference in Teheran. They demanded that President George W. Bush stay away from St. Petersburg in protest against Moscow "rolling back democracy".

When it became clear that none of the G8 leaders would boycott the Russian summit, the Western press, quoting unnamed government sources, predicted confidently that a dressing down of Russia over its human rights record would dominate the summit, sidelining the official agenda. It did not.

Putin, who held four press conferences during the three-day summit, stole the show from the other G8 members. He put down firmly any attempts to lecture him on democracy. When Bush spoke of U.S. efforts to promote institutional changes in various countries, including Iraq, "where there is a free press and free religion, and I told him [Putin] that a lot of people in our country would hope Russia would do the same thing," the Russian leader retorted: "We certainly would not like to have the same kind of democracy as they have in Iraq," eliciting laughter from those present. Asked on another occasion whether he would discuss democracy with British Prime Minister Tony Blair, Putin answered that the two leaders also had other issues to discuss, such as corruption.

"It will be interesting for us to hear about your experience with Lord Levy," he said, referring to the British Labour Party fund-raiser accused of handing out seats in the House of Lords for cash.

As it turned out, the question of democracy in Russia was tucked away quietly, and did not come up until Putin himself broached the subject at a dinner with the G8 leaders.

Why such an undramatic denouement to so high-pitched a campaign? The answer is that the West today needs Russia more than Russia needs the West. Europe's dependence on Russian natural gas supplies is expected to rise from the current 26 per cent to 50 per cent of its total needs by 2020. The U.S. is keen to go for Russian Liquefied Natural Gas (LNG) in a big way to lessen its dependence on the increasingly volatile West Asian region.

For its part, Russia, awash with oil money, needs little from the West, apart from advanced technologies. Spurred by rising energy prices, the Russian economy has been growing at around 7 per cent in recent years. Russia has paid off the debt owed by the Soviet Union to the West ahead of time, built up the fourth largest foreign currency reserve in the world, and made its ruble fully convertible from July 1.

U.S. PRESIDENT George W. Bush and Putin after a joint press conference in St Petersburg.-JIM BOURG/REUTERS

Relying on Russia's new economic strength as an energy superpower, Putin set his own terms for relations with the West. He placed energy security at the forefront of the G8 summit to redefine this concept to reflect Russia's interests. He demanded that Europe and the U.S. drop their opposition to Russian energy companies buying into their energy distribution systems. Otherwise, he said, "we start to look for other markets". Moscow has already reached an agreement with Beijing to build two gas pipelines to China, which will supply the country with up to 80 billion cubic metres of gas a year, raising fears in Europe that the supplies to China may come at their expense.

A statement on "Global Energy Security" adopted by the G8 gave Putin what he wanted. It states explicitly that "companies from energy producing and consuming countries can invest in and acquire upstream and downstream assets internationally in a mutually beneficial way and respecting competition rules to improve the global efficiency of energy production and consumption."

While previously energy security was confined to the security of supplies for the buyer, now it has been expanded to include the security of demand for the seller. This means that Russia's Gazprom natural gas monopoly will now be able to buy European companies that sell and distribute energy to the retail market, as well as pipelines, underground gas storage facilities and power-generating companies. This is something that even oil-producing Arab countries have found hard to do owing to administrative and political hurdles. Russia may earn an additional $30 billion to $60 billion a year from retail energy business in Europe, which is far more profitable than Gazprom's wholesale gas deliveries to Europe. The geopolitical effect of tying Europe to Russian energy supplies will be even more valuable.

In return Russia has agreed to give Western energy companies access to its oil and gas fields, but not to its pipelines. A day after the G8 summit Putin signed into law a Bill consolidating Gazprom's control over gas export pipelines. Russia is also planning to limit foreign investment in "strategic" oil and gas fields, a list of which is still being compiled. Russia's success is all the more significant since it came in the face of strong pressure the U.S. had put on Europe to prevent what U.S. Secretary of State Condoleezza Rice called "a monopoly of supply from one source only, from Russia". However, U.S. efforts to dictate energy strategy to Europe in dealing with Russia does not seem to have worked because Europe and the U.S. are locked in fierce competition for Russian energy resources. European and U.S. companies are vying for a stake in Russia's biggest gas field, Shtokman, in the Barents Sea, which holds enough gas to meet Europe's entire needs for seven years.

Moscow exploited skilfully the clashing interests of Europe and the U.S. to get the most from both. Apart from winning wider access for its companies to the retail energy markets of Europe and North America, Putin on the sidelines of the summit reached a breakthrough agreement with Bush to develop civilian nuclear cooperation between the two countries for the first time in the history of their relations. The two sides are to draw up an accord similar to the one India has signed with the U.S. It will give Russia access to U.S. reactor and fuel-processing technologies. Until now the U.S. had rejected nuclear cooperation with Russia because of its construction of two nuclear reactors in Iran.

Whether the agreements reached in St. Petersburg will be honoured is an open question. A new campaign is picking up in the West to dismiss the summit as useless and its agreements as hollow. Contrary to high expectations, a Russia-U.S. deal on terms of Russia's entry in the World Trade Organisation (WTO) was not reached during the summit. Russia accused the U.S., the only WTO member still to clear Russia's bid, of deliberately stalling on the agreement. Speaking at a press conference in St. Petersburg, Putin complained that although the Cold War COCOM (Coordinating Committee for Multilateral Export Controls) lists of Western technologies banned for export to the Soviet Union had long been abolished, "we are still meeting rigid curbs on transfers of high technologies to Russia".

The West's treatment of Russia smacks heavily of double-speak. On the one hand, the West claims its goal is to help Russia integrate into the Western world; on the other it hinders Putin's efforts to promote such integration through Russia's accession to the WTO, broader energy cooperation, and freer access to Western technologies.

Russians think the West has a problem coming to terms with a resurgent Russia. "Americans have a severe disease - worse than AIDS. It's called the winner's complex," former Soviet President Mikhail Gorbachev said. Moscow made it clear that a rising Russia would not tolerate to be treated as the Cold War loser. "The practice of inter-state relations where Russia incurred substantial economic losses as quid pro quo for gaining the friendliness of the leaders of certain foreign countries is a thing of the past," Russia's Defence Minister Sergei Ivanov declared in a keynote article published a day before the summit.

"Russia has fully recovered the status of a superpower that has global responsibility for the situation in the world and for the future of the civilisation," Ivanov said. The G8 summit in St. Petersburg under Russia's presidency went a long way towards establishing Russia as a full-fledged and equal member of the Western club of industrially developed countries. Russia's membership in G8 has changed the group's agenda. It is no longer a Western rich man's club concerned with defending its selfish interests from the rest of the world.

Putin pressed the point that Russia is a link between the East and the West, the North and the South, by holding a trilateral meeting with Prime Minister Manmohan Singh and Chinese President Hu Jintao during the G8 summit. It was the first Russia-India-China meeting at the summit level.

"Our approaches to key international problems are very close or, as the diplomats say, they practically coincide," Putin said, opening the meeting. Putin threw his support behind proposals (Blair has already aired one) to expand the G8 by including India, China and other outreach countries whom Russia had invited to attend the summit. "Without such countries as India and China it is impossible to solve global economic and financial problems," he said.

Putin outlined a new political agenda for the G8 - to help mould a new multi-polar world. "Our world has not become safer after the collapse of the bipolar world," he said. "On the contrary, it has become less predictable.... We do not have the tools and instruments to address the challenges of today."

An expanded G8 may become such a tool. "What mankind is concerned with today, what we are doing in G8 is to try and work out a new architecture of international relations," he said.

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