MOSCOW OUTRAGED BY U.S. SANCTIONS AGAINST TWO RUSSIAN COMPANIES

On the evening of Friday, August 4, the Russian Foreign Ministry published a statement that condemned in the strongest possible way the decision of U.S. State Department to introduce sanctions against Rosoboroneksport and Sukhoi for violating the Iran Nonproliferation Act of 2000 (Lenta.ru, August 4). Two topics dominated the weekend commentary: causes and consequences.

On causes, the main line for speculations was drawn by the Ministry of Defense, which asserted that the sanctions were an example of “unfair competition” on world markets and ventured an opinion that Washington had found no better response to “Russia’s breakthrough on the Venezuela arms market” (Newsru.com, August 5). That suggestion appeared plausible for many experts, since the reflections on President Hugo Chavez’s visit to Moscow were still quite fresh and the contracts on exporting arms to Venezuela indeed exceeded expectations (see EDM, July 31). Many in the Russian political elite gloated over the description of United States as a “senseless, dumb, and blind giant” given by Chavez, so now they are naturally inclined to see “revenge” (Ekho Moskvy, August 5).

As for the consequences, Rosoboroneksport quickly asserted that the company would suffer no economic losses, since it did not have any cooperative ties with the United States, but it expressed no surprise, pointing to the tough competition and the clear U.S. desire to assert its market dominance (Newsru.com, August 5). Sukhoi was more reserved, since its important contract with Boeing on producing the civilian Super-Jet 100, with first deliveries planned for 2007, could be in jeopardy (Gazeta.ru, August 5). Both companies, however, have also to consider reputation damage. Rosoboroneksport in particular has been expanding rapidly into non-military industrial sectors, assuming control over struggling carmaker Avto-VAZ and purchasing a controlling interest in VSPMO-Avisma, a major producer of titanium with significant export interests in the U.S. market (Vremya novostei, July 19). It aspires to become to Russian manufacturing what Gazprom is to the energy sector, but now many cooperative links with Western high-tech firms could become vulnerable.

Two key points could have been missed in these initial reactions. One is that it appears highly improbable that Washington would use Iran as a pretext for an unrelated agenda, even on such an important “adversary” as Venezuela. Iran is a top-priority issue and concerns about its proliferation prospects run deep in Washington; they could have been further aggravated by the unexpected ability of Hezbollah to deliver numerous missile attacks so deep into Israel’s territory. There is not a shred of evidence connecting Russia with these grossly inaccurate missiles, but Iran is the most probable source, so every transfer of technology that could result in an upgrade of Iranian production capacity becomes a threat. Sukhoi claims that it “has not delivered a single screw” to Iran in the last eight years, but Rosoboroneksport has extensive ties that include spare parts purchased from Sukhoi for those Soviet-made Su-24 fighters that escaped to Iran from Iraq during the Gulf War (Interfax, August 4; Kommersant, August 5). Its most controversial $700 million contract with Iran involves the delivery of some 30 TOR-M1 tactical surface-to-air systems at the end of this year.

The only possible spoiler for this deal could be an embargo on the arms trade with Iran that might be introduced by the UN Security Council, but that involves a second point, which has not emerged in the Russian debates so far. Rosoboroneksport is not just an arms-trading company; it is in fact a fully integrated part of the state machinery, so Washington has, for all intents and purposes, imposed sanctions against the Russian state (Kommersant, August 7). That fact is certain to make a serious impact on the protracted diplomatic maneuvering around the Iranian nuclear program.

U.S. President George W. Bush and Russian President Vladimir Putin discussed this problem at length during their mini-summit before the G-8 meeting last month and achieved sufficient understanding for a new UN Security Council resolution that was adopted on July 31 and spelled out demands to stop the enrichment activity by the end of August. There are few doubts that Iran would not comply, perhaps citing the escalation of hostilities in Lebanon (Nezavisimaya gazeta, August 2). For Washington, the logical next step is international sanctions; for Moscow, sanctions have so far remained a non-issue.

The U.S. administration either wanted to push Russia towards a tougher stance on Iran by putting its companies on notice, or it has given up on shifting its position; in both cases, however, the chance for hammering out a new “muscular” UN resolution in early September now appears transparently slim. As seen from Moscow, the U.S. project for democracy building in the Middle East is sinking fast and the war in Lebanon has delivered a new torpedo. Denying Hezbollah huge political gains is a mistake of the same order as the excommunication of the Hamas government or the exclusion of Syria from the search for a stable arrangement for Lebanon. The “mother” of all these mistakes is the unfolding disaster in Iraq and, unlike the Europeans who had to swallow their objections against launching this war because the price of failure would simply be too high, Russia is content to watch the defeat of the over-stretched “hyper-power.” The perfect irony in this partnership can be seen in the fact that sanctions have been introduced against Russia before they have taken shape against Iran.