The Oil and the Glory

The Weekly Wrap: June 3, 2011

The Weekly Wrap: June 3, 2011

Russian election clues?   A couple of weeks ago, I ventured a bet that, contrary to the conventional wisdom, Russian President Dmitry Medvedev will run and win re-election in next year’s elections; his mentor, Prime Minister Vladimir Putin, will opt to keep his protégé in place, I wrote. While for a variety of reasons I still think that is the case, it’s understandable why many think otherwise: Putin is throwing up a lot of conflicting signals. Take his decision to eradicate much-hated and bribe-laden car inspections for the remainder of the year, worth up to $300, writes Will Englund at the Washington Post. And what about Putin’s announcement of a $285 billion program to rebuild Russia’s ramshackle roads, another bane of the country (that’s Moscow traffic pictured above)? Is Putin announcing such programs from a simple sense of good governance? According to Robert Coalson of RFE-RL, the way Russia’s strongman is presiding over the affairs of the ruling United Russia party, he is sending "the strongest signals yet that he intends to return to the presidency in 2012."

This is entertaining — and convincing — to be sure. But that’s the point. Putin doesn’t need to convince anyone — all of Russia and the rest of the world know that the job of president is his for the taking. So why the show? Because he wants the accolades, the hero-worship, the pleading crowds and so on, but while pushing matters to the brink, in the end he will, for the good of the nation of course, step aside (technically, that is) and maintain the status quo. The system works the way it is. Ask yourself this question: why in the last month (as the Moscow Times rounds up in an editorial) have the killers of Stanislav Markelov been imprisoned; has imprisoned oligarch Mikhail Khodorkovsky, while not released, been permitted a fair hearing on state-run NTV television while announcing a decision to appeal; and has the alleged triggerman of murdered journalist Anna Politkovskaya been captured and charged? Is it because Medvedev is acting against Putin’s wishes?

This is where it’s possible to lose one’s way. What seems dissonant in the tandem in fact isn’t. It happens because Putin wants the balance that Medvedev provides. Not incidentally, Medvedev is content with this state of affairs as well. One way to understand Medvedev is as simply another expression of Putin — that is, even if Putin stepped completely out of the picture, Medvedev would not turn Russia into bastion of liberalness. Rather, when Medvedev’s Russia undoes some of the injustices in the country, "what might appear to be the dismantling of Putin’s legacy is not a dismantling at all," the Moscow Times editorial board writes. It said:

Khodorkovsky, even if given parole for good behavior, will not be acquitted. Investigators might have found Politkovskaya’s killer, but we are unlikely to ever know who ordered the murder. Ultra-nationalism is still not being fought outside the courtroom. And thousands of other murky cases — such as the death of lawyer Sergei Magnitsky or the beating of Kommersant reporter Oleg Kashin — have not been properly investigated. Most important, the power vertical, along with its creator, is as strong as ever. Medvedev may stay in the Kremlin without tackling these issues. But if a handful of high-profile cases is all that he has to offer in terms of political reforms, his second term in office will differ little from Putin’s policy of status quo. A second Medvedev term might then be best described as ‘modernized stagnation.’

 

The crisis of chronic crises: New economic numbers show that the U.S. isn’t going to need more oil any time soon — the economy is super-sluggish, and may get worse. On the other hand, Syrians keep pouring into the streets and being shot dead, and today shells wounded Yemeni President Ali Abdullah Saleh as he was praying — turmoil that could impact the world’s oil supply. What’s been the effect on oil prices? Ho-hum.

What we have is a market that has totally priced in the potential threats of the Arab Spring (such as potential attacks on Yemeni ports by rebels or al Qaeda), and isn’t influenced a whit by the surplus of oil around the world. It’s bobbing up and down around $100 a barrel based wholly on macro-economic data, especially the value of the dollar — when the dollar weakens against other major currencies, the oil price rises over $100; when it’s stronger, the price declines. What does this mean? Without the Arab Spring, oil would probably drop by an estimated $20-a-barrel — the risk premium that traders have priced into crude. But since the Spring isn’t going to end soon, the higher price will probably be with us awhile yet.

A wrench in that fan could be the scheduled June 30 end of the Federal Reserve’s injection of massive amounts of oil-price-inflating cash into the market. A lot of analysts think much of the air will then go out of the oil price. Yet one wonders: This injection of cash — known as QE2 — has been discussed so much that traders may have already priced its demise into oil as well.

 

I can whip you. No you can’t: If the United States wishes to take down the temperature in South Asia, it could do a lot worse than figuring out a solution to the decades-long Indian-Pakistani dispute over the state of Kashmir. It is among the handful of so-called frozen conflicts that, if resolved, could fundamentally transform what otherwise appear to be insoluble "facts-on-the-ground," and make it easier for currently antagonistic neighbors to be friendlier toward one another. So as well is the case with Nagorno-Karabakh, an Armenian-populated enclave within oil-rich Azerbaijan. Karabakh has been the source of Azeri-Armenian war and other deadly violence since 1988. As the New York Times’ Ellen Barry writes, such festering conflicts are pernicious. "The 2008 war in Georgia serves as a reminder of how quickly and terribly they can come unfrozen," Barry writes. Yet, it’s equally important for outsiders to dig deep and long, and not get carried away as the locals can prefer one to. To read Barry’s piece, one could easily conclude that Azerbaijan is a hair’s breath away from a surprise attack of youthful, hate-filled, ultra-fanatical snipers, including one in hijab, on Armenian fighters in and around Karabakh. This is no small thing — if war did occur, it would be a humanitarian disaster, judging by the consequences when the two sides went at it in the early 1990s. But it also would have global implications, since Azerbaijan produces 800,000 barrels of oil a day.

But is the situation so? I myself just today left Baku after a week in town. Azeris are certainly angry about Karabakh, as they have been for a long time, and President Ilham Aliyev is spending an enormous sum on a military buildup while egging on his countrymen’s feeling of indignance. But Barry is not quite on the mark on a couple of crucial points. One is that the Azeris "could easily drive out Armenian forces" from Karabakh. History is replete with examples of the cautionary rule that fine kit does not an army make. Simply put, the Armenians have demonstrated themselves to be a superior fighting force; not so much the Azeris, who have had their moments, but (speaking generously) ultimately haven’t shown similar prowess.  Things can change; skills can improve. But I covered the last war, and I — and others who I think know what they are talking about — think it’s a fair stretch (again speaking generously) to suggest that the Azeris would walk over the Armenians.

Barry also reports that negotiations between the two sides are at a standstill, sending conditions between the sides "in a dangerous direction." My own reporting resulted in the opposite conclusion — I heard acute signals of a coming potential breakthrough. There is a genuine chance that the two sides will sign what mediators call a "basic principles agreement" in the coming weeks. That would not mean peace; it would not mean the eradication of the threat of war. The Azeris and the Armenians would have long, probably years-long negotiations ahead of them, I was told. But it’s also different from the perception of direness. Tom De Waal, the Caucasus expert at the Carnegie Endowment, writes on the talks and an advance made at last week’s G8 summit at Deauville by Russian, French and U.S. mediators of the conflict. The negotiations are promising, but as De Waal writes, the real problem is not a hair-trigger rush to war, but a rush to antagonistic oratory that makes it difficult to sign peace deals:

Despite intense talks in private, in public the leaders still voice maximalist positions and call on their adversary to surrender. The rhetoric is especially brutal on the Azerbaijani side. The day after the Deauville declaration, Azerbaijani deputy prime minister Ali Hasanov called the Armenian president a ‘criminal’ and his government a "fascist regime" which needs to be ‘overthrown.’

 

Meeting ground for lucrative political spats: Some autocrats are facing trouble in the streets because they fail to offer fair judicial and political systems to remedy grievances. Others choose to avoid the street risk entirely by making Washington their arena of battle. When the latter happens, the U.S. capital’s cash registers go "Ka-ching!" A few countries can’t seem to get enough of the fun.

Such is the case with oil-rich Kazakhstan. In November, a federal judge in New York called a close to a decade-long spat involving tens of millions of dollars in alleged bribery, money laundering and racketeering embroiling the CIA, U.S. oil companies, and the Kazakh president. Judge William Pauley exonerated a New York businessman named Jim Giffen of the major charges, in the process putting an end to tens of millions of dollars in paychecks for Washington and New York law, lobbying and PR firms. Yet, already the Kazakhs were at it again — behind the scenes, another, even higher stakes lobbying battle was under way. In this feud, as described by the New York Times’ Eric Lipton, Kazakh President Nursultan Nazarbayev had taken the extraordinary step of expelling his eldest son-in-law from the ruling family, and charging him with kidnapping; in turn, the son-in-law, Rakhat Aliyev, was retaliating by launching a vicious public relations campaign against the Central Asian leader. And both of the men were paying the usual army of New York and Washington hands to help argue their cases. Where is the truth? Nazarbayev is in fact a self-dealing autocrat, though not as odious as described by Aliyev, who on the other hand is pretty much the thug described by the Kazakh state. Yet in Washington, who cares? There, the byword is ka-ching.

On a serious note for forward-thinking autocrats, what you don’t generally get when foreign politics comes to Washington is resolution of the nasty politics, which eventually can result in the first set of circumstances in any case, or a spilling of the trouble into the streets at home.