The Standard

Putin To Nationalize Key Russian Industries

New State Corporation Likely To Be One Among Many

Russian President Vladimir Putin has introduced legislation before the Russian parliament that would nationalize key sectors of the Russian economy.

The legislation calls for the creation of a state-owned corporation, Rostechnologii.

The corporation will own its own assets and its managers will be appointed by the president of the Russian Federation.

The new state-owned giant will control the Russian military-industrial sector.

It will also absorb the largest Russian car manufacturer, OAO Avtovaz and the titanium-maker VSMPO-Avisma.

VSMPO-Avisma is a key supplier to the American company Boeing.

The Russian parliament is dominated by President Putin's party and it is all but certain that the legislation will pass.

Plans are also being drafted in high Kremlin circles to nationalize the arms-trading, shipbuilding, and atomic energy sectors, among others.

Russia Concentrates Political and Economic Power

Putin's move comes on the heels of what analysts considered an attempt by the Russian gas giant GazProm to complicate the formation of the new Ukrainian government.

Experts believe GazProm threatened to cut off Ukrainian gas supplies on the basis of invented debts in hopes the public spectacle might bolster the strength of the outgoing (Pro-Russian) parliamentary bloc.

The Putin government has continually operated far outside of American and European standards for the separation of state power and the market economy.

Government pressure in August led the last remaining independent oil entrepreneur in Russia, Mikhail Gutseriev, to surrender his 100% stake in the $6 billion company Russneft and flee the country.

Week In Review

Climate Change, A French Hard Line on Iran, and Kazakh Oil

**** Former US President Bill Clinton said that bold investment in technologies for combating global warming  would help US growth.

Mr. Clinton called for US companies to mobilize economic resources on a level not seen since World War II.

****Secretary General Ban Ki-Moon opened the UN Conference on Climate Change with calls for world leaders to take responsibility for reducing carbon emissions.

US President George W. Bush was notably absent.

****France reiterated its tough stance on Iran's nuclear program.

French President Nicolas Sarkozy told the UN General Assemnly that the possibility of an Iranian nuclear weapon was an  "unacceptable risk" that threatens international stability.

****Western companies cringed as Kazakhstan looked set to pass a law that gives the government authority to change or break contracts with foreign energy firms unilaterally.

Week In Review: International

*** Labor Day made it a short week in the US, where economic data continued to suggest the economy was moving toward recession.

*** Sources out of Washington told the Financial Times that the Chinese PLA were very likely to have hacked Pentagon computers, but cyber-spying on the information infrastructure of the US Department of Defense doesn't elicit much of a response from the White House these days.

Perhaps it was busy planning its upcoming war with Iran?

Barnett Rubin thinks so.

*** Across the Atlantic, Russian officials threw a public hissy fit when the EU mentioned the prospect of legislation that would prevent Russian state-controlled corporations from taking over European energy companies.

Later in the week, Russia sent eight bombers up above the Barents sea, apparently just to see if the UK and Norway would pay attention to them. They did, but EU leaders seem a little hush-hush about the group rendez-vous up in the skies.

*** And where would our week have been if we hadn't caught Vladimir Putin shirtless, strolling by an evergreen shielded stream in his crucifix and military fatigues?

Mr. Brown? Ms. Merkel? We're waiting...

Russia: EU Energy Measures "Totally Unfair"

Russian government officials and energy company executives (they're the same people) reacted to proposed EU energy legislation at the end of last week with what can only be properly described as a hissy fit.

The European Union has recently considered lessening state-control of the energy sector within Europe but fears that 'unbundling' energy companies might leave them open to purchase by Russian companies that are directly controled by members of the Kremlin.

A number of legislative measures will be discussed in Brussels on Sep 19.

The Kremlin is not so pleased.

Really, it seems they're quite offended.

Alexander Medvedev called the proposed measures 'economic nationalism'.

The deputy press secretary for the Kremlin also chimed in, declaring: "measures to discriminate against Russian companies would be totally unfair."

Poor, poor Kremlin.

Why is big, mean Europe being so "totally unfair?"

Here are a few suggestions.

1) There was last week. Yes... There was one remaining private oil company in Russia (it had a whole 3% of the market). The Kremlin forced the owner to sell his company to a Kremlin insider after pressure from trumped-up charges. Then Moscow courts issued warrants for his arrest. Rumor has it, he's in Britain now. Hmm... I wonder if he likes Polonium in his tea?

2) Then there were those textbooks. Remember those? The ultra-nationalist textbooks that declared the England was 'totalitarian' and said, I quote:

"The development of the global political process will depend on Russia's decision on where to send its oil and gas. It's enough to deprive a rival of energy for development – in the geopolitical battle, such an act could be a defining moment."

When you indoctrinate your school children to understand that you're going to use energy supplies to extort other countries politically, the other countries might suspect you plan to do it.

3) There's just something about forming huge, state-controlled, corporate monopolies, putting ex-KGB men at the top of them, and giving all of their employees the legal right to carry firearms, that makes everyone a little nervous.

In fact, after writing this out, it's pretty clear to me that these measures in some form are critical for European security.

Sorry guys, maybe those years in the KGB never really hammered home life's sad, sad truth -- sometimes things just aren't fair.

Kremlin Shores Up State-Owned Oil Monopoly

Entrepreneur Arrested

Arrest warrants were issued in Moscow on Tuesday for Mikhail S. Gutseriev, the former 100% owner of the private Russian oil company Russneft.

Russian authorities had recently forced Mr. Gutseriev to surrender his stake in the company after courts charged him with tax evasion and illegal activity.

Kremlin to Create 'Mega-Corporation'

Mr. Gutseriev's arrest comes on the heels of announcments in Russian newspapers that the Kremlin will pool together smaller oil companies in Russia to create a 'megacorporation' out of the already sizeable "Rosneft". According to gazeta.ru, the newly fused company will pump 3.5 million barrels of oil per day.

Russneft was worth $6 billion dollars and pumped only 3% of Russian oil, but apparently, Rosneft and the Kremlin will be satisfied with no less than complete control over the market.

Russian markets have been open about the fact that Rosneft is state-owned.

As one market 'analyst' put it, "Rosneft is the foundational investment idea of this year. Its operational and financial results will shatter the myth surrounding the inefficiencies of state-run companies."

Don't hold your breath.

Russian-Chinese Alliance Unlikely, Says Slate

Ian Bremmer from Slate has written a good article on why it's unlikely that the world will see a Sino-Russian military alliance despite the fact the two countries staged joint war games at the SCO a few weeks ago.

Two points, though, before you dive in.

1) Mr. Bremmer grossly misunderstands the character of Russian power and the Russian government's desire to re-assert itself as a world power. He presents Russian references to international and domestic rule of law as if they were a sincere attempt to abide by some geopolitical ethical code. This perspective is naive.

The Putin administration has no regard for the deeper importance of rule of law. Russian foreign policy is power increasing power for the sake of more power; law is merely one of the instruments it will use to secure an advantage.

2) This for Slate.

"Foreigners: Opinions about events beyond our borders"

doesn't really encourage the proper approach to international events here in the States, now does it?

I propose:

"Those people who look and talk funny: Opinions about the people who hold all our debt "

Now that's a column header.

The New Russia: Georgia Alleges Second Attack in Four Months

Missile Lands in Georgian Village

Georgia has accused Russia of an "undisguised aggression," claiming two Russian Su24 jets entered Georgian airspace on August 7 and fired (or "ditched", according to other reports) a missile that landed near a house in the village of Tsitelubani.

The missile did not explode. (See The New York Times and the BBC for August 7 coverage.)

Georgia has called for an emergency UN meeting. Russia has denied all allegations.

The United States has called the act a "provocation" and the European Union has urged all sides to show restraint.

Meanwhile, the good people at The Economist have put the incident in context.

But there's much more context.

Well... A Second Missile Attack

As The Wall Street Journal notes, this was the second time in four months that Georgia has lodged a complaint with the international community regarding a Russian attack.

On March 11, two helicopters flew over the mountains into Georgia's Kodori Valley and fired a missile into a Georgian government building. This missile, as it happens, exploded.

Again from WSJ: "The sheer sophistication of a helicopter attack in high mountain passes at night would point to Russian authorship. Its military is the only one in the region known to have the equipment and training needed to pull it off."

The Russian government, not so unexpectedly, denied the allegations.

When asked by the UN to provide radar records, the Russian Defense Ministry claimed that the Russian military records "only flights by aviation of the Russian armed forces." As there were no Russian aircraft in the area that evening, the Ministry letter went on to explain, there were no records to provide.

At this point, let's all pause for three seconds and reflect on the purpose and uses of a military radar system.

Good.

It's should be clear now that Russian helicopters entered the airspace of a free, sovereign nation, staged a military attack, and the UN, the United States, and the European Union have offered no measured diplomatic response.

Now as the same free, sovereign nation makes a second accusation, the United States government has mangaged a whisper, while the European Union has taken upon itself the supreme responsibility of playing the role of kindergarten teacher.

Probably nothing to worry about...

An ultra-nationalist state that has changed its school textbooks to present Great Britain and the United States as its 'totalitarian' adversaries and stated directly that oil and gas supplies ought be used as geopolitical weapons (See previous post).

Cooler heads...

Here's the map of oil and gas pipelines (in french) from Russia to Europe, in case you were wondering...

The last half year has seen the Russian government take aggressive new stances in the international game of power and indoctrinate its new generation with belligerent nationalist ideology that lauds the glories of the Soviet past. It has also seen the Russian military accused of various acts of aggression. This above post is only a part of the whole.

The New Russia: Part One

Shaping Hearts and Minds

Putin Endorses a Dangerous History, Belligerent Energy Policy

On June 21, Russian President Vladimir Putin invited Alexander Filipov, Russian history teachers, and Russian historians to his residence to discuss two new manuals about how to teach Russian history (No WSJ subscription? Here's WaPo.) Mr. Filipov, deputy head of the National Laboratory of Foreign Policy, is editor of the guides.

The manuals are expected to form the basis for history lessons in Russian schools beginning next year. As Leonid Polyakov, professor of political science at the Higher School of Economics in Moscow, has put it: "Teachers will be able to incorporate this national ideology [contained in the manuals], this vision, into their practical work in a normal way and use it to develop a civic and patriotic positon."

The manuals are disturbing - both for their judgments on Russian history and the views they present of the current international political situation.

The guides present Russia's "new democratic political culture" as "the main instrument of its rebirth and rise," while it describes Joseph Stalin as "the most successful leader of the USSR." But the manuals do far worse than mis-labeling what is primarily a one-party political culture and lauding a man whose reign as dictator of the Soviet Union is estimated to have killed up to twenty million people.

US and European leaders would do well to direct their attention to the guides' attitudes on petroleum markets and international political affairs.

One excerpt reads: "The development of the global political process will depend on Russia's decision on where to send its oil and gas. It's enough to deprive a rival of energy for development – in the geopolitical battle, such an act could be a defining moment."

This perspective, of course, directly disregards rule of law and rejects a sensibly regulated free market -which are the foundations for free and civilized society.

It is equally disturbing in light of the realities of the nationalized Russian energy sector.

Russian gas and oil is principally distributed by GazProm and TransNeft, respectively. Both corporations are generally perceived to be state-controlled.

GazProm, in particular, owns and controls all pipelines that export natural gas outside of Russia.

In July, the Russian State Duma voted to give both corporate giants' employees the legal right to carry firearms.The law places no limits on the number of people the companies may arm.

GazProm, at last count, had around 430,000 employees.

As might be expected, the general tenor of the teaching manuals has raised concerns among human rights groups and history teachers in Russia. Pavel Danilin, the author of a chapter in the guides entitled "Sovereign Democracry", responded to teachers' complaints on his blog:

"You will teach children in line with the books you are given and in the way Russia needs. To let some Russophobe [expletive], or just an amoral type, teach Russian history is impossible. It is necessary to clear the filth and if it doesn't work then clear it by force."

Mr. Danilin is an editor at the Effective Policy Foundation, a consulting firm that works for the Kremlin.

See additional coverage by WSJ.