Sun, Sep 02, 2012 - Page 9 News List

Putin finds his forte in isolating Russia from its near neighbors

By Anders Aslund

Russia has shown itself to be an international spoiler with its ardent support for Syrian President Bashar al-Assad. The contrast with its benign policy toward Libya last year reflects how Russian foreign policy changed with the return of Vladimir Putin to the Kremlin.

Russia has resumed its aggressive anti-American policy of 2007-2008, which culminated in war with Georgia in August 2008. Ironically, this bellicosity harms Russia the most, because it alienates all but international pariahs, such as Syria, Venezuela and Belarus.

Even in the former Soviet Union, almost all countries are seeking trade and security with anyone but Russia, because Putin is using all sticks and no carrots. His three main policy instruments toward the post-Soviet states are the customs union implied by his proposed “Eurasian Union,” Gazprom and the Collective Security Treaty Organization (CSTO). Each intimidates Russia’s neighbors, while none benefits them.

Currently, Putin’s top priority is to persuade as many countries as possible to join the customs union, but so far only Belarus and Kazakhstan have done so. Belarus set a high price, demanding a bailout of no less than US$20 billion last year, while geography condemns Kazakhstan to get along with Russia. However, the other post-Soviet countries resist, because a customs union with Russia would force them to raise their import tariffs, hindering their trade with other countries.

If Russia were serious about economic integration, it would promote free-trade agreements to facilitate trade in all directions. In fact, in October last year, Russia initiated such a new multilateral free-trade agreement in the post-Soviet space; but, owing to the Kremlin’s single-minded pursuit of the customs union, only Belarus and Ukraine have ratified it.

The Central Asian countries’ opposition to a customs union with Russia reflects their growing trade with China. In Europe, Moldova, Ukraine and the Caucasian countries prefer free-trade agreements with the EU, which the customs union would preempt. Moreover, the customs union makes it almost impossible for Russia to conclude any free-trade agreement with the EU.

Meanwhile, Gazprom, one of Russia’s key foreign-policy instruments, is probably the world’s most mismanaged corporation. Last year, investment bankers assessed its losses through waste and corruption at no less than US$40 billion. Gazprom’s policy is to threaten client countries with high prices and stop deliveries until it gains full control over a country’s gas-pipeline system.

The mismanagement is not merely financial. In early 2009, when Gazprom could not sell all of its gas to Europe because of the Great Recession, it sought to cut its supplies from Central Asia. It did so suddenly and without warning, causing the pipeline from Turkmenistan to explode.

After the Turkmen repaired the pipeline, Gazprom reneged on the old price. Today, Turkmenistan refuses to cooperate with Russia. It delivers most of its gas through a new pipeline to China, as do Kazakhstan and Uzbekistan. As a result, Russia has lost its access to cheap Central Asian gas, as well as to the Chinese market.

Gazprom has pursued its most public fight with Ukraine, insisting on prices that are 50 percent higher than what its EU customers pay. In addition, Gazprom is increasingly diverting gas transported through Ukraine to Europe to its new North Stream pipeline, with plans to circumvent the country further when the proposed South Stream is completed in 2015. The current Ukrainian government would happily hand over half of its pipeline system to Gazprom in exchange for a lower gas price, but Putin demands that Ukraine also join the customs union.

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