The Standard

Week in Review

**** The Iraqi government voided a contract with the Russian company LukOil to develop the West Qurna oil field. The contract, canceled once during the Saddam era, had had dubious merits.

**** Shares of PetroChina nearly tripled during its first day of trading on the Shanghai market. The company's resulting market cap of more than $1 trillion flamed concerns about an asset bubble in the Chinese stock market.

**** The Russian lower parliament voted 418 - 0 to withdraw Russia from the Conventional Forces in Europe Treaty (CFE). Putin and the upper house are expected to fully ratify the measure by December 12.

**** China's National Development and Reform Center (NDRC) issued a new enforcement guide that will advise Chinese officials to restrict foreign investment in several industries and welcome it in sectors where China stands to gain technological know-how.

Russia Nears Withdraw From Arms Treaty

Duma Votes Unanimously to Suspend CFE

The Russian lower parliament has voted 418-0 to suspend the Conventional Forces in Europe Treaty (CFE).

The law must be passed by upper parliament and ratified by President Putin before it can come into effect on December 12.

It is expected to do both.

The treaty is considered a keystone of post-Cold war security.

It limits the number of tanks, helicopters and other conventional weapons along the borders between Russian and Eastern Europe.

The restrictions are designed to prevent surprise attacks.

Russian Assertive Foreign Policy

Russian foreign policy has been marked by blunt displays of power over the past several months.

Early this summer Russian bombers began Cold War style patrols near British and Norwegian air space.

The Russian military detonated what it called the most powerful non-nuclear bomb in history ("Father of All Bombs") several months later.

President Putin recently announced on national television that he will re-vamp the Russian nuclear arsenal.

The Break Between Russia and the West

The assertive foreign policy has created a widening distance between Russia and the West.

Internal EU documents uncovered in October showed that EU politicians considered labeling Russia an "opponent" ahead of the EU-Russia summit at the end of the month.

Last week the French and German foreign ministers warned in a joint letter to European newspapers that a Russian withdraw from the CFE might provoke an arms race.

European angst crystallized on Wednesday when the European Council on Foreign Relations released a report that called Russia an "ideological alternative" to Europe whose foreign policy was "motivated by a quest for power, independence and control."

Russia Loses Iraqi Oil Contract

Iraqis Nix Saddam-Era Deal

The Iraqi government has voided a contract with the Russian company LukOil to develop the West Qurna oil field.

The field is estimated to hold 11 million barrels of untapped reserves.

The contract was signed in 2002 while Saddam Hussein was still in power.

It was then rescinded by the Hussein government shortly before the American invasion.

Mr. Hussein had been angered that LukOil brokered agreements with opposition groups in the event that his regime might fall.

The Russian government has called the decision an "outrage."

Energy, Politics and Russian Nationalization

There has been growing concern in the West about the role of state-run energy companies in serving the Kremlin's political interest.

In August, the Kremlin leveraged the last independent oil entrepreneur, Mikhail Gutseriev, out of the country and swallowed up RussNeft, a company that represented a mere 3% of the Russian oil production market.

Last October the state-run gas monopoly GazProm suddenly announced an unpaid $1.3 billion Ukrainian debt and threatened to cut off Ukrainian gas supplies.

The surprise debt was announced the day after after pro-West parties triumphed in Ukrainian parliamentary elections.

Week in Review

  **** The previous week's Russia-EU summit ended with unresolved disputes over Russian investment in the EU energy markets and the planned US missile shield in central Europe.

**** In a joint letter published in French and German newspapers, the French and German foreign ministers warned that a Russia's planned withdraw from the Conventional Forces in Europe Treaty (CFE) may provoke an arms race.

The ministers referred to the "specter of a new Cold War."

**** Russia placed restrictions on the number of international monitors it would allow into the country to observe the December parliamentary elections. The monitoring agencies called the move "unprecedented."

**** The Chinese company TEDA reached an agreement with Egypt to build an industrial zone near Suez that is expected to pull in $2.5 billion in Chinese investment.

The deal is another tie forged in a growing economic partnership between the two nations.

Russia To Stifle Election Monitoring

Russia In Bold, Unprecedented Step to Limit Election Monitors

The head of the Russian Central Electoral Commission has announced that Russia will limit the number of international election monitors at December parliamentary elections.

The commission sent out invitations to the various election groups on Tuesday.

Letters from the commission restrict the monitoring staffs to 300 - 400.

The number is small by comparison to the 1,165 officials that monitored Russian parliamentary elections in 2003.

A spokeswoman for the Organization for Security and Co-operation in Europe (OSCE) called the restrictions proposed by Russia "unprecedented."

Invitations are normally without special restrictions, leaving the monitoring groups to decide on the number of staff needed for effective monitoring.

Not Quite Democracy

Despite public declarations by Russian leaders that Russia is a "sovereign democracy," Western politicians have grown increasingly concerned about the authoritarian realities of Russian politics.

Media content is controlled largely by the Kremlin and only the United Russia party receives significant, positive coverage.

United Russia also happens to have an overwhelming majority in the Russian parliament.

The party's popularity was recently buoyed when President Putin (a co-founder) announced he planned to head the party's candidate list this December.

Few doubt Mr. Putin is poised to use the upcoming elections as a stepping stone to the post of prime minister.

The move will put him in position to preserve his power after he steps down from the presidency in 2008.

Experts have speculated that the December 2007 elections may give United Russia a crucial two-thirds majority in the Russian parliament.

This would give the party (and the new prime minister) the power to make "legal" changes to the constitution.

France and Germany: Danger of "New Cold War"

Foreign Ministers: Russian Treaty Withdraw May Provoke Arms Race

The French and German foreign ministers have urged Russia against withdrawing from the Conventional Forces in Europe Treaty (CFE).

Their appeal appeared on Tuesday as a joint article in the French le Monde and the German Frankfurter Allgemeine Zeitung.   

The foreign ministers warned that a Russian withdraw as planned could provoke an "arms race and new conflicts."

At one point they referred to the "specter of a new Cold War."

Russia is scheduled to withdraw from the treaty on Dec 12 after an announcement was made by President Putin this summer.

The CFE was signed in 1990 and is widely regarded as a linchpin of post-Cold War security.

It limits the deployment of conventional weaponry such as tanks and aircraft between the Atlantic Ocean and the Ural mountains.

The treaty also reduces the chances of surprise military attacks by limiting the number of forces a country can deploy in certain border areas.

The New Russian Foreign Policy

Russian foreign policy has grown increasingly assertive over the past several months.

Russian bombers have rehashed Cold War era flight patterns and drawn fighter escorts from Norway, the UK and the US on multiple occasions.

The Russian military last summer detonated the "Father of All Bombs," and promptly announced it was the most powerful non-nuclear device in history.

President Putin also recently announced his intention to re-vamp the Russian nuclear arsenal on Russian national television.

Until recently many European and American leaders had described Russia's actions as domestic political posturing in lead-up to the power transfer when Putin steps down from the presidency in March 2008.

A full Russian withdraw from the CFE would, however, prove a major geopolitical event.

The security provided by military information-sharing between Europe, Russia and the US would presumably evaporate.

EU-Russia Summit Leaves Rifts

Something, But Not Much

EU leaders and Russian President Putin ended Friday's EU-Russia summit with the announcement of two minor deals -- a bi-lateral aggreement on steel and a "Memorandum of Understanding"  between European and Russian drug control agencies.

An uneventful summit has highlighted rifts between Russia and the EU where it appears there is little room for compromise.

Energy and GazProm

Little was announced publicly about the so-called  "GazProm clause" in recent EU energy market reforms.

Europe depends on Russia for 25% of its natural gas.

European leaders have recently grown weary of Russia using energy as a blunt tool to further its political interests.

The reforms require foreign companies that own both production and transport capacity for natural gas to sell off one of their wings before investing in the EU energy market.

The rules effectively block out the Russian state-run monopoly GazProm from investing in the EU market.

The issue is contentious, as it is generally assumed that GazProm's expansion plans had involved size-able investments in Europe.

Missile Shield

The summit also addressed the issue of the defensive radar and missile systems the US has proposed to build in Poland and the Czech Republic.

The US has said the missile systems are purely defensive and are intended to defend Europe from missile strikes from so-called "rogue states" like North Korea or Iran.

Russian president Putin has called the missile shield a threat to Russian national security.

At the summit, Mr. Putin compared the American proposal to the Soviet decision in 1962 to secretly deploy medium-range nuclear missiles in Cuba -- an event which led to the Cuban missile crisis and pushed the world to the brink of nuclear war.

Putin's comparison (however absurd) sends the strongest signal yet to the West that Russia will refuse to compromise on the US, Czech and Polish plans.

Week in Review

Victories in Poland Seem Victories For Europe

In Polish parliamentary elections, Donald Tusk's Civic Platform party gained 41% of the vote and looked set to form a coalition with the moderate Polish Peasants Party.

Mr. Tusk vowed to seek broader cooperation with the EU.

This pro-EU stance, should it play out, will differ drastically from the approach of the outgoing nationalist conservative government.

US: We'll Build It, But We Won't Turn It On

****The US announced it would consider delaying "activation" of a planned missile defense system stationed in the Czech Republic and Poland until there was evidence of a missile threat from Iran.

The statement was a response to Russia's continued opposition of the plan on the (quite flimsy) basis that the radar system threatens Russian national security.

Russia Sets the Price of Food

****The Russian government  ordered Russian food retailers to freeze prices on basic types of food including vegetable oil and bread until the end of the year.

Russia is facing fierce food inflation as global demand for basic food staples reaches an all-time high and global supply remains low after a summer of floods and droughts.

EU Grows Weary of Aggressive Russia

**** Document drafts show that European politicians considered calling Russia a "competitor and even opponent" in documents prepped for the EU-Russian summit.

The wording was watered down in later drafts that warn Russia may pursue a foreign policy that will alienate Europe.

EU Document Drafts: Russia an "Opponent"

Strategic Partners No Longer?

EU documents prepared ahead of the Russia-EU summit have revealed a growing ambivalence toward Russia among European politicians.

Papers circulated before the summit say there is a "risk" that "Russia will distance itself from 'Europe' in its social and political development and in its approach to the world."

The wording is much milder than in earlier drafts, where ministers go far as calling Russia a "competitor and even opponent."

Apart from the official language, there is also growing distrust of Russia and Russian president Vladimir Putin in the European parliament.

Energy

Europe is dependent on Russia for 25% of its natural gas.

The dependence has made energy the primary point of contention in Russian and European relations.

Europe has grown suspicious of GazProm, the state-run gas monopoly whose employees were recently granted the right to carry firearms by the Russian parliament.

The European Commission announced a proposal in September that would prevent GazProm from investing into European energy markets.

Russia reacted to the proposals with dismay.

Bomber Flights and Missile Treaties

There is also growing concern about Russian foreign policy.

President Putin has announced he will withdraw Russia from the Conventional Forces in Europe Treaty

He also has hinted he may nix Russia's involvement in a medium-range inter-continental ballistic missile agreement (NIF).

To top it off, Russia has accompanied this diplomatic chest-thumping with increased bomber flights over Scandinavia.

On the eve of the summit the latest EU draft is neutral yet suggestive:

"Russia is likely to be marked by an assertive foreign policy, tougher internal policies and heightened rhetoric."

Russia To Institute Price Controls on Food

Prices Frozen Until End of the Year

The Russian government has reached an agreement with food retailers and manufacturers to freeze the price of certain types of bread, milk, eggs and vegetable oil until the end of the year.

Russia has seen the price of food rise considerably this year.

The sharp rise poses a domestic political problem for Russian president Putin, as the majority of the Russian population lives off of small incomes and meager pension checks.

Increased prosperity during the president's term is also the main rallying point for United Russia, the pro-Putin party that dominates all levels of Russian politics.

The government has officially called the price control programs "voluntary," but retailers have said government officials made the decision without any preliminary negotiations with the food industry.

The Financial Times quoted one food company executive as saying: "“We were told in no uncertain terms that we have to freeze prices on certain products."

The authoritarian solution has reminded some journalists of Soviet price-fixing.

Global Food Inflation and Dollar Plunge Pose Challenges

Global food prices have risen sharply across the globe over the past several months.

Floods, droughts and increased demand from growing urban populations and the biotechnology industry have sparked price hikes in milk, pasta, bread and vegetable oil.

The fight to keep food prices down in emerging economies like Russia has been complicated by the plunge of the dollar.

The rapid strengthening of the ruble against the dollar has hurt Russian exporters and companies with high export revenue have urged the government to moderate the currency's rise.

Russia has done this chiefly by buying dollars.

But weakening the ruble in turn makes food imports more expensive.

This means higher food prices for the Russian consumer.