No Comment — July 6, 2007, 11:29 am

The Coming Cold Snap in U.S.-Russian Relations

Presidents Bush and Putin just concluded a summit at the Kennebunkport compound owned by the former President Bush. It included obligatory photographs of smiling presidents and their wives. It may cause some to think that all is well in dealings between the U.S. and Russia. That would be a mistake.

We are now poised on the brink of a new era in U.S.-Russian relations, an era in which the role of Europe will likely be much more ambiguous than in the past. The new era will have significant repercussions for commerce; it will be particularly important for energy markets and for energy transportation questions. But it will also have important ramifications for globalization efforts, for capital markets and for the general movement of goods and services in the region. The new era is not likely to be a return to the Cold War, but it is likely to be marked by a much more assertive and self-assured Russia, a much more cautious United States, and major European powers on the sidelines – increasingly torn loose from historical relationships with the United States, and cautiously feeling out a new and sometimes uncomfortable relationship with Russia. The U.S. will continue to be the sole superpower, but the new dynamic will have something closer to a multipolar flavor to it. Let’s call it the coming cold snap.

First a brief historical excursion. I don’t intend here to give a “fair and balanced” recounting of history. I want to pull out a few facts here and there which seem to me generally overlooked, but consequential. Facts moreover which will have some weight in the short-term future development of U.S. and Russian relations. We tend foolishly sometimes to anticipate things in straight-line linear development. But of course history rarely functions that way.

One Century Back
It’s interesting to compare the situation one hundred years ago with what we face today. In the first decade of the twentieth century, the world counted six great powers – Britain, France and Germany in Europe, Japan in Asia, and Russia and the United States, the two powers on the periphery. Austria-Hungary and Italy were the also-rans, the not-quite great powers. I recently spent some time looking at investment analysis and advice from this period, just a few years before the Great War. Most analysts viewed the growth potential for the European powers as quite limited; many correctly forecast a post-colonial slump for Britain and France, and Germany, which had arrived too late on the scene for the colonial struggle, was seen as economically and militarily potent, but lacking growth potential. However, Russia and America were each the masters of a great land mass filled with natural resources; and market analysts saw tremendous potential for each of them. Indeed, quite a few of them saw in Russia and America the potential great powers who would eclipse the older European powers. These analysts saw things in terms of wheat production, population growth, railroad track laid, and manufacturing potential. Not all of this type of analysis has practical consequence for us today. Yet it is interesting to see how, jumping ahead one hundred years, the United States managed close to straight-line growth, while Russia reeled from one existential crisis to the next. In a sense America pulled far ahead because it benefited from its geographical position, a domestic consensus about major questions, and its wise management of foreign conflicts – America often was happy to let others bear the brunt of the fighting for it, as surely happened in World War II. Russia in the meantime went from one calamity to the next, facing staggering loss of human life. They help to explain American self-assurance and optimism and Russian pessimism. I paint with a broad brush, but these facts have great consequence for the way Russians and Americans view each other

The End of the Cold War
The Cold War fluctuated over a period of forty years between severe phases and thaws, and was mostly played out in proxy wars – which certainly was a very good thing for the survival of the human species. Americans have generally adopted a triumphalist analysis of the end of the Cold War – that may be comforting but it lacks much intellectual honesty. The Cold War ended when elites in Russia came to a broad acceptance of the fact that the market system had achieved de facto dominance in the world, and the only practical way forward required recognition of this as a fact. People may associate this with Mikhail Gorbachev, but in fact it was a broad collective judgment, and it dates back far before the period of perestroika. In 1968, Andrei Sakharov had begun to argue that a combination of political and economic factors would drive a sustained convergence between the Socialist and Capitalist systems. In fact things progressed far more dramatically than Sakharov anticipated, but it is clear looking back now that he was extremely prescient in detecting the beginnings of this progress in the fateful year, 1968. Now and for the near future, convergence continues to be the theme. Convergence is not always a stroll in the sunshine, however. Indeed, one of the distressing areas of convergence is that the United States, the former bastion of civil liberties, has now embraced far more authoritarian notions of government by the executive. In this way the erosion of civil liberties in Russia has been echoed, though more mildly, by an erosion of civil liberties in the United States.

The Yeltsin Years
The Yeltsin years marked the development of an unprecedented warmth in US-Russian relations, which reached its peak during the Clinton presidency. There was a high level of bilateral cooperation. American advisors played a prominent role – probably too prominent for their own good – in the legal innovations of the Yeltsin era that marked a transformation from a command to a market system. These reforms were aggressive and marked by pervasive corruption. They resulted in a highly distorted allocation of assets into the hands of a small group of plutocrats. The Yeltsin presidency is broadly viewed as a failed presidency for these reasons, and the American proximity to Yeltsin therefore constitutes more of an irritant than a plus to future relations.

Two Presidencies: One Successful…
The arrival of Vladimir Putin in 1999 marks a very important change in Russian political development. Putin acted very quickly to address the major problems associated with Yeltsin:

  • Shoring up respect for the law (his famous diktatur zakonov);
  • Improving revenue collections to put the budget back in order;
  • Cracking down on the plutocrats, and specifically going quickly against those who had the highest profile and were the most politically engaged;
  • Working to restore Russia’s image on the international stage, specifically by acting more aggressively both within the near abroad and in Europe.

Putin assuredly will be faulted for his rollback of basic civil liberties, for the brutal conduct of the war in Chechnya, for his intolerance with respect to domestic political opposition. Yet for all of this, Putin’s presidency must be reckoned a striking success. He articulated clear goals that reflected the needs seen by the majority of the Russian people; and he took steps reasonably measured to achieve these goals. In fact, it is beyond dispute at this point that he did achieve these goals.

I will cite one example that reflects the underestimated brilliance of Putin’s policy agenda. Putin has an impressive, personal mastery of energy policy. Indeed, this has been a subject that has long captivated him. In St Petersburg, Putin did his kandidat nauk with his dissertation topic on the creation of a foreign policy for Russia which derived maximum benefit from Russia’s enormous oil and gas reserves, with a focus on the gas aspect. The dissertation argues that Russia’s gas resources and Middle Europe’s dramatic gas needs provide Russia with far more effective leverage with the Europeans than the military calculus of the late Soviet period.

If we examine Russian foreign policy under Putin, one thing is immediately clear: that energy and energy transportation policy play an absolutely pivotal role. In fact, I would pull out four strands, relations with:

  • The near-abroad, where energy relations are consistently used to advance local elites closest to Russia and to redefine relations between the near-abroad state and Russia;
  • Europe, where Putin, putting a hard focus on Germany, has worked very hard to develop a new core relationship. Consider the speech that Gerhard Schröder delivered last week in Yalta, in which he charts a new German-Russian core relationship. That a former two-term German chancellor would give such a speech would have been unthinkable – and then note it was given in Ukraine! Moreover, if we examine statements of Beck, Steinmeier and other leading figures in German Social Democracy, it seems clear that Schröder is no aberration; this is the emerging doctrine of a political power that sits right at the historical heart of power in Germany.
  • Iran. There has been a striking and subtle reassertion of Russian interests in the Middle East, and it has moved away from the former allies among radicalized Arab states and towards Iran. This relationship is highly problematic for many reasons, but Russia has positioned itself to benefit generally from American saber-rattling and over-extension in the Middle East, and Russia appears to accept the probable emergence of Iran as a regional hegemon.

The Other Failed
Now let’s take a look at America over the same period. Following 9/11, America waged two wars – in Afghanistan and Iraq – largely on its own and without the support of historical allies. America has badly stressed and taxed its military capabilities and severely eroded its historical alliance relationship. Just as Putin has built his position with traditional soft power techniques, America under Bush has undermined its position through a heavy reliance on military power at the expense of soft power. We see the fruits of this in something truly astonishing – in a poll just completed by the Pew Charitable Trusts, in a number of key historical American allies, Putin is viewed more favorably than Bush; in all of them, favorable evaluations of the United States have sunk dramatically. I should add very quickly that in none of the five is Putin viewed positively; but he is less disliked than Bush. This is the bitter harvest of extremely foolish policies – a grossly mismanaged and ill-conceived war in Iraq, and taunting and degrading political rhetoric. Polls of this sort do not easily translate into government policy. Nevertheless, the current environment has important policy consequences. Bush will remain president until January 2009, and he is likely to remain at sustained levels of unpopularity that no president – including Richard Nixon – ever saw. He may turn to very assertive action on the world stage – we have a number of analysts in the U.S. now putting the odds of some significant U.S. military action targeting Iran at 50% or higher before the end of 2008 – but he will certainly face an extremely difficult domestic position if he attempts this. Moreover, traditional allies, such as the great European powers are most likely to “sit out” a conflict.

Putin is viewed as a successful president. He has an 80% approval rating at home. As to Bush, the American public and public opinion abroad are pretty much agreed that his presidency has been a failure. In fact, its success or failure is seen as dependent on the Iraq War. Bush has an approval rating in the mid-twenties by the latest polls.

However, both Bush and Putin are coming to the end of their terms. That also is an important factor, since they are more likely to pursue their inclinations and less likely to be reined in by domestic political considerations.

The Flashpoints
I believe the circumstances are ripe for conflict now between Putin and Bush. There are an alarming number of immediate “flashpoints” which may lead to a further cooling of relations between Russia and the U.S. Some of them have the potential of escalating into a larger conflict.

  • Kosovo. Americans barely seem conscious of the emergence of a sharp divide between the U.S. and Russia over this small, remote, poor Serbian region dominated by ethnic Albanians. It’s barely reported and in most American papers isn’t reported at all. But it is without a doubt a serious potential flashpoint. Martti Ahtisaari, the former Finnish president, has painstakingly put together a plan for resolution of the Kosovo situation. At the core of the Ahtisarri proposal is a system of managed autonomy for Kosovo. Russia is sure to reject this and indeed any proposal which qualified Serbian sovereignty over the area. Russia sees itself as a guarantor of the territorial integrity of Serbia. Indeed, it took this role for itself a century ago, with profound consequences and loss of life. And if this is played out as now seems most likely, Russia is likely to turn to Georgia as its whipping boy. It will point to the position of Abkhazia and South Ossetia and say that the Kosovar solution can just as easily be copied on sovereign Georgian territory through an extension of Russian protection over these regions. Thus, this matter has the potential to spiral dangerously.

  • Ukraine. The situation in Ukraine has been dangerously unstable for a very long time now. It is clear generally that Yushchenko’s position had eroded and that Yanukovich’s position has consolidated. Generally the political landscape is so fragmented and complex that it requires a full-time concentration to track it. Nevertheless, I see the current situation as the product of a far more sophisticated and subtle play of Russian interests than we saw before. This is balanced by a realization that integration with Europe is at best a very distant prospect for Ukraine. Clearly the consensus view in Europe is that the EU was dangerously overexpanded, and now it needs to take time to consolidate. For many reasons, the shorter term realities for Ukraine require more of a focus on Moscow. On the other hand, Washington continues to have a strong interest in a robust and autonomous Ukraine. And of course, historically the turning point – what defines Great Russia and Little Russia – has been the inclusion of Ukraine. For all of these reasons, Ukraine will walk a very difficult path in the coming years, and it is a potential source of major tensions between Russia, the European Union and the United States.

  • Missiles. This is the “nostalgia” aspect, since for three decades, U.S.-Russian dialogue had missile deals at its core. There has been about a 12-year hiatus. The U.S. proposal for a missile shield is a touchy matter for the entire region. It has been embraced by Poland and the Czech Republic, but, particularly in the Czech Republic, it has little popular support. Russia sees this as a military project oriented against Russia. America insists it is directed only against a potential threat from Iran. At the G-8, Putin proposed a joint U.S.-Russian base in Azerbaijan. I understand from analysts who are close to this that Bush is highly unlikely to accept this proposal. The missile shield issue is therefore likely to continue as a dangerous irritant. From the Russian perspective, the U.S. gave assurances when Soviet forces left East Germany that there would be no redeployment of U.S. forces in the area behind them. Those assurances were not scrupulously honored. As NATO expanded to the east, the U.S. gave assurances that U.S. forces would not be deployed forward into those new states, which were former Warsaw Pact states. The missile defense system is seen as a breach of that assurance, too. Viewed this way, of course, it’s not difficult to understand why the Kremlin would be worked up about this. And there is the further issue raised by Russia’s own new missile program, a development which surprised Washington. Both of these factors should drive the U.S. and Russia towards closer talks on missile limitations. But there seems little willingness in Washington to go this route – at least at the present.

  • Energy supply disruptions. The lynchpin of Russia’s energy-driven European policy has been to ensure European dependency on Russian gas and oil supplies, and then to jerk the chain at will. Russia has consistently outmaneuvered the U.S. and Western producers in the pursuit of this objective – as shown in the recent Turkmenistan – Central Asian gas transportation deal. Germans and others in Europe think back with dread to the interruption of gas through Ukraine. This could be another flashpoint.

  • Arrest warrants and extradition requests. The murder investigation concerning Alexander Litvinenko produced an arrest warrant and the possibility of two others, and Scotland Yard is openly linking the murder to covert operatives, two of whom are close to the Kremlin. This is a very tricky matter, especially for U.K. – Russian relations. And a matter with personal sensitivity for Putin.

  • The cyberwar. What to make of the recent “cyber attack” in Estonia? We have a lot of analysts in the west saying this was a test of a cyber capabilities by Russian state security. No doubt many nations have such capabilities – reports have recently been spread about Chinese plans for cyber war, for instance. A spread of similar attacks in the near-abroad countries, as a sort of modest slap-down when Russia is unhappy about some development is a possibility.

  • Gratuitous provocations. Vice President Cheney is the administration’s attack dog. His speech in Vilnius did a lot to put a chill through U.S.-Russian relations. He continues to give speeches that attack Putin personally and his policies. He has been a consistent advocate of robust U.S. action on the territory of the near-abroad. This saber-rattling rhetoric can also provide a flashpoint.

Now in addition to these flashpoints, there are three negatives that weigh in for Russia

  • Demographics. Malthus wouldn’t know what to do with Russia. Russian demographic trends are the worst of any major power in the world. Life expectancy is astonishingly low, and birthrates continue to decrease, reflecting an alarming popular pessimism. This will have important long-term effects for Russian political economy. A shrinking population base is classically viewed as destabilizing and an enormous challenge to a healthy economy – even in the face of massive natural resource revenues.

  • Considering its current strong capital development, Russia has not made the corresponding investment in its energy sector. In fact it continues to lag far behind where most analysts anticipated it would be today. Energy revenues are critical to Russia, and the failure to invest suggests a contraction of these revenues even if market demand produces higher prices.

  • Is Russia a good long-term capital investment risk? Well, the positive factors I have charted are offset by many negative ones which heighten the political risk associated with parking a lot of capital in Russia. And a key indicator is the failure of Russians to invest their own capital in Russia. Russians seem to think their own country is a less desirably long-term capital investment. That’s not good for many reasons, but principally because it paints a weaker than expected portrait of Russia as an investment magnet.

Considering all of these factors, I expect Putin and his successor to play an increasingly robust card on the international stage, especially when vital Russian interests are affected. I have given my best guess of where I think friction – or worse – between the U.S. and Russia may well result. How will Bush react? If he is still being guided by Dick Cheney on these matters, he might well react in a highly provocative way. And that’s why I think it best to keep a careful eye trained on this prospect for the coming year a half.

Remarks delivered at a conference in Tbilisi, Georgia, on July 6, 2007.

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