Obama's policy towards Russia should be rooted in an understanding of the relationship between Russia's energy strength and the war with Georgia, argues Ryan Koslosky. The key to a successful US-Russia policy today is renewed transatlantic relationships.
The Obama administration faces stark new geopolitical realities. The unipolar world order which emerged at the end of the Cold War proved unable to suppress regional ethnic and sectarian conflicts. President-elect Obama will be assuming power at a new juncture, one which sees the rise of multiple regional powers, ones which are both empowered and constrained by the global economic system. One such regional power is Russia.
The foreign policy implications of the Georgian conflict are far from resolved. During the Yeltsin years, Russia appeared to be a reliable ally of the United States and a general supporter of Clinton foreign policy. With its economy undergoing a hard transition, its global communist alliances in shambles, and a protracted conflict in Chechnya to contend with, Russia was not in a position to rebuke the source of much needed aid. It is now, however.
As Russia has undergone an economic transformation, its leadership has changed. Political elites have settled Russia comfortably into a new geopolitical niche, that of a regional power that can extend its influence to its environs without significant hindrance. In South Ossetia, Russia exercised that power, and gave the world an example of its regional realpolitik.
The Caucasus does not generally receive much Western media attention. The region's politics are an orphan of Soviet expansion and collapse. It is a quintessential clash of opposites: where communism met Islam, where Europe meets the Middle East. It is where Russian energy needs meets ethno-identity. In the 1960s the Soviets even came up with an equation to measure the correlation between underlying levels of ethnic tension and economic growth. They called it ethno-linguistic fractionalization.
One such example with which Russia has had to deal since the fall of communism is the war in Chechnya. Unlike Chechnya, the issue in South Ossetia is not one of internal control within the Russian Federation, but of the exercise of regional influence.
Domestic energy consolidation
Prime Minister Putin's political strategy can be divided into two elements: internal consolidation and external pressure. Russia's energy market largely shapes the country's internal political landscape. The story of the oil company Yukos reveals how the Russian government has consolidated its power through reorganizing its energy industry.
Following the privatizations of 1992, Yukos was created along with three other companies charged with extracting Russian oil and gas. Under the leadership of its president Mikhail Khodorkovsky, the company became Russia's largest oil company by acquiring smaller oil and gas entities, and through implementing transparent accounting and corporate governance standards.
In the spring of 2003 Yukos announced that it would be purchasing Sibneft, and thereby creating the world's largest energy company. That summer ChevronTexaco and ExxonMobil announced they were interested in purchasing up to 25 percent of Yukos-Sibneft. This would have had the effect of drastically limiting the Russian government's influence over the company.
Mr. Khodorkovsky had also begun funding several opposition political parties. Yukos started a lobbying campaign, spending approximately $ 300 million annually on influencing the political process. Its success was evident in its influence over several key parliamentary commissions: 130 Russian MPs were supposedly under Yukos' control. But the backlash came when Mr. Khodorkovsky was arrested and charged with tax evasion and embezzlement. Yukos was liquidated to settle its alleged tax burdens. The threat had been neutralized.
After the arrest, the Russian government completed its consolidation over the oil and natural gas industry. In late 2004 state-owned Rosneft acquired a major Yukos subsidiary. The following June, the Russian government obtained a majority share of Gazprom, the world's largest extractor of natural gas. And in September 2005, the largest corporate takeover in Russian history occurred when Gazprom bought 73 percent of Sibneft. Coincidently, both the Chairmen of Gazprom and Rosneft were Deputy Prime Ministers and personal allies of Mr. Putin.
The Caucasus and the pipelines
Oil and natural gas also fuel the Russian macro-economy, literally. Russia recently surpassed Saudi Arabia to become the world's largest oil producer. It is home to the largest known natural gas reserves on earth. With those resources under their control, the Russian government has a significant interest on keeping the price of oil high.
Russia is also in a good geostrategic position to exert its influence on price. Much of the existing pipeline network reflects the old bureaucratic hierarchy of the communist regime; they run south-to-north bringing Caspian oil to Russia, then to Eastern Europe. Thus, Russia, through its state-owned pipeline monopoly Transneft, is able to exert upward pressure on oil prices by controlling the rates it is brought into EU markets.
However, there is a possible alternative to pumping gas through Russia. Three other pipelines run from the Caspian Sea to the Mediterranean and Black Seas without crossing into Russia. All three run next to South Ossetia.
Within 24 hours of the start of the Russia-South Ossetia conflict Russian planes bombed the port of Poti, 200 miles away from the battle front. Poti is the end-point of one of the three major Georgian pipelines. Its oil terminus was destroyed. The closure, and more importantly the threat of closure, of the Georgian pipelines increase the reliance of European markets on Russian-delivered oil and natural gas, since these carry a lower risk premium than regional alternatives.
The conflict in South Ossetia is, of course, not the only component of the new Russian realpolitik. Russia's arms shipments to Iran, Mr. Putin's meeting with Mahmoud Ahmadinejad, and his declaration that Iran has the right to pursue nuclear technology should all be viewed in the larger context of Russia's energy industry. And within hours of President-elect Obama's victory speech, Russian President Dmitry Medvedev threatened to deploy Russia missiles to counter the planned US missile shield.
The siren call of the energy lobby
The timing of Mr. Medvedev speech should be seen in relation to the Obama administration's need to formulate an intelligible regional policy toward Russia and the Caspian. The incoming administration should beware of pressure from the oil lobby with regards to US-Russia policy. In the absence of a windfall profits tax, a substantial factor driving Vice President Cheney's energy task force was the interest of American oil producers in keeping energy prices high. Moreover, many US-based oil companies have partnerships in the Caspian region and wish to maintain a conciliatory relationship with Russia.
US policy toward the region should not be dictated by the desire of the oil lobby to see increased offshore drilling, either. Since only a small fraction of US energy imports come from the region, increasing domestic production to offset US imports from the Caspian and Russia would be of little value.
The crucial EU relationship
The key to a successful US- Russia policy is the renewal of America's transatlantic alliance with Europe. Russia, through its energy policy, is seeking to create an asymmetric interdependence, whereby the EU needs Russia more than Russia needs the EU. Russia is poised to control the agenda of EU-Russia relations. By pursuing a policy of divide-and-rule, it seeks to conclude multiple bilateral deals with EU members rather than negotiating with the EU itself.
Revitalizing international partnerships and institutions will help leverage America's position with Russia. Formalizing channels of negotiation with Russia through international organizations would help unify the plethora of interests and attitudes toward Russia. Above all, such reverse triangulation would prevent Russia from pitting European interests against each other.
American foreign policy towards Russia should align itself primarily with the EU, for reasons rooted in economic interdependence. The EU receives about 40% of its energy from Russia, yet over 51% of Russian imports come from the EU. The EU exported about € 89 billion worth of goods and services to Russia in 2007, coupled with € 17 billion in investments. Russia cannot afford to seriously damage the economic relationship of its largest trading partner. The key to rebuking Russia's divide-and-conquer strategy lies with the EU approaching its relationship with Russia as a singular entity. This is a task the Obama administration can support and supplement by renewing a US-EU partnership.
Choose OSCE over NATO
The OSCE may also provide a useful diplomatic forum through which security concerns may be negotiated. In recent years, attention has focused on NATO's expansion, and the proposed missile shield. Yet because of the threat perceived by Russia from NATO's eastern expansion, future constructive dialogue is likely to prove difficult.
NATO's effectiveness is further compromised by Turkey's membership. Thanks to its control of the Bosporus Straits, Turkey is a regional geo-strategic player. Not only does it control Black Sea oil exports from Russia, Georgia, and the Ukraine, it has also been built extensive infrastructure, cultural ties and extended credit to others within the region. The Turkish Eximbank has granted million in loans to Azerbaijan and opened credit to Turkic nations. The Baku-Ceyhan Pipeline, a centerpiece of Turkey's Caucasus policy, has pitted Turkey against Russia and polarized the political relations of the Caucasus because of its Georgian route. In addition, Turkey has maintained a healthy diplomatic relationship with Israel, in order to consolidate its Western alliances. The resulting bloc consisting of Turkey, Israel, Azerbaijan, and Georgia is now counterbalanced by a Russo-Iranian-Armenian alliance.
The OSCE by contrast includes both the US, Russia, and all countries of Europe and the Caucasus. Multilateral dialogue within the confines of an international organization which is inclusive of all parties is likely to be more productive than diplomatic posturing that pits interest directly against interest.
The outgoing administration has unfortunately failed to lay the foundation for credible and lasting cooperation with our European allies. The Bush administration recently reneged on a deal which would have facilitated joint civilian nuclear projects. What is needed is a commitment to multilateral diplomacy and an adherence to our international agreements, even when these are not convenient in the short-term.
The world has extended a degree of goodwill to President-elect Obama and his incoming administration. It is essential that President Obama build on this. A successful US policy toward Russia will need to be founded upon a realignment of America's diplomatic efforts, a renewed vision and new emphasis on our transatlantic partnerships.
Ryan Koslosky is a Senior Fellow at the Institute for Human Rights, Peace, and Development University of Florida