THE FORTNIGHT IN REVIEW

CHECHNYA CASTS A LONG SHADOW Russia’s tortured relations with Chechnya formed the backdrop against which the main events of the past fortnight were played out. On August 1, Prime Minister Sergei Kirienko marked his first hundred days in office by meeting with Aslan Maskhadov, the president of the breakaway republic. Only a week before, on July 23, Maskhadov had survived an assassination attempt that so alarmed President Boris Yeltsin that he ordered Kirienko to meet with Maskhadov without delay.

At first sight, the meeting achieved little. Maskhadov could not even persuade Kirienko to travel to Chechnya, and the two leaders met in neighboring Ingushetia. They concluded no new agreements and issued no joint concluding statement. According to Maskhadov, the most important thing was that the meeting took place at all: he professed renewed hope that Russia would fulfill the agreements signed since 1996, particularly the one promising funding for Chechnya’s post-war reconstruction. For his part, Kirienko admitted that Russia had money to spare for nothing other than pensioners, medicine and children. Instead, he proposed creating a “free” or “special” economic zone in Chechnya–an idea that the Chechen authorities have already rejected on numerous occasions.

The media speculated that the two men also discussed the one concern that Chechnya and Russia share: their common interest in ensuring that Caspian oil bound for western markets is piped through Chechen territory to Russia’s Black Sea port at Novorossiisk. The fact that Maskhadov left Chechnya for Turkey soon after his meeting with Kirienko lent circumstantial weight to this speculation. Turkey would play a key role in the onward transmission of oil sent by this route.

NEW FOCUS FOR RUSSIAN SECURITY FORCE

Events in Chechnya cast their shadow over other political developments, too. When, on July 25, Yeltsin removed Nikolai Kovalev as head of the Federal Security Service (the main post-Communist successor to the KGB), Russian and Chechen media speculated that Kovalev had been dismissed for bungling the July assassination attempt against Maskhadov. A more likely explanation appeared to be that Yeltsin wanted to replace Kovalev with someone personally loyal to himself who could reorient the security agency toward economic issues. That man was Vladimir Putin, a former intelligence officer who served most recently as first deputy chief of staff in Yeltsin’s presidential administration.

PRESIDENTIAL COALITIONS TAKING SHAPE?

Another major development also carried Chechen connotations. That was the publication on July 27 of a joint letter in which four leading politicians, all of whom had been closely associated in the past with Russian policy toward Chechnya, called on Kirienko’s government to adopt and implement a clear policy on Chechnya and the North Caucasus in general. The four were former Premier Viktor Chernomyrdin, CIS Executive Secretary Boris Berezovsky, Krasnoyarsk Krai Governor Aleksandr Lebed and Tatarstan President Mintimer Shaimiev. The unexpected emergence of this unlikely foursome prompted immediate speculation about a new, right-of-center political bloc to challenge the left-of-center coalition emerging around Moscow’s populist Mayor, Yuri Luzhkov.

There will doubtless be many shifts in the country’s political kaleidoscope before Russians go to the polls to elect their president in December 2000. Luzhkov continues to deny that he will be a candidate. This has not, however, prevented him from developing an intricate network of regional links or encouraging the formation of a new, socialist coalition called Unity. The Kremlin has tended to look on Luzhkov’s activities with indulgence, since it sees him as likely to attract votes away from the Communist-dominated coalition headed by Gennady Zyuganov. The Communists and their nationalist allies have not split yet, but their alliance is looking increasingly frayed around the edges. The Communist Party itself was thrown into disarray when one of its leading members, former Gosplan chief Yuri Maslyukov, defied party orders and accepted Yeltsin’s offer of a powerful cabinet post as minister of industry and trade.

IMF VOICES APPROVAL

Stanley Fischer, first deputy managing director of the IMF, expressed satisfaction after a two-day visit to Moscow to discuss Russia’s implementation of the IMF-agreed austerity program. The IMF wanted to check progress prior to the disbursement of the second $4.3 billion tranche, due in mid-September, of the Fund’s US$22.6 billion rescue plan. Fischer professed himself pleased with the government’s efforts to cut spending and increase tax collection, but reminded Kirienko that “There is still a lot of work to be done.”

Russia’s jittery financial markets seemed less confident. They continued to decline amid doubts over the government’s ability to tighten its belt and simultaneously avert serious labor unrest over chronic wage delays.

NON-PROLIFERATION TOPS RUSSIAN-U.S. AGENDA

Proliferation issues appeared to get top billing over the past fortnight as U.S. Vice President Al Gore traveled to Moscow while U.S. Secretary of State Madeleine Albright met in Manila with Russian Foreign Minister Yevgeny Primakov. Gore’s July 23-24 visit provided a first opportunity for the U.S. vice president to confer officially with Russian Prime Minister Sergei Kirienko. The two men met under the auspices of the Russian-U.S. technology and economic cooperation commission that has long played a key role in relations between the two countries.

Russian cooperation with Iran in the area of nuclear power and missile development appeared to occupy a considerable portion of Gore’s and Kirienko’s attentions. The U.S. vice president reportedly asked Moscow to limit its nuclear energy cooperation with Tehran to the Bushehr nuclear power station in southern Iran. The United States has long opposed Russia’s decision to build the plant. Gore also expressed concern over Iran’s testing a week earlier of a medium-range ballistic missile. But he applauded Moscow for what he said were increased Russian efforts to stop the flow of missile technology to Iran.

Russian-Iranian missile cooperation was also on the agenda when Albright met with Primakov in Manila on July 27. In talks that took place on the margins of the Association of Southeast Asian Nations (ASEAN) annual conference, Albright reportedly also restated U.S. concerns about a controversial Russian missile deal with Cyprus. Primakov, in turn, was reported to have told Albright that President Clinton’s decision to visit Russia later this year would help the Kremlin in its efforts to win ratification of the START II treaty.

Increased Russian-U.S. cooperation appeared to open the way on July 29 for the Clinton Administration to impose sanctions on seven Russian enterprises believed to be aiding Iran in its efforts to develop ballistic missiles. The U.S. action was expected in Moscow, and followed the launching of an investigation by a Russian government export control commission into the activities of the same seven firms–and two others besides. The July 29 executive order signed by Clinton bars U.S. government assistance to the seven enterprises and also forbids them from exporting goods to, or importing goods from, the United States. The Clinton Administration’s action came amid mounting pressure from U.S. lawmakers to move against Russian firms aiding Iran’s missile development efforts.

MANAGING A COLD WAR LEGACY

Although Russian-U.S. cooperation in the area of arms export controls appeared to gather a little momentum, it was unclear whether the same could be said about interaction between the two countries on another proliferation issue–the handling and security of Russian nuclear weapons materials. According to a report published by the New York Times on August 5, a 1992 Russian-U.S. agreement under which the United States is to buy uranium from Russia could be in danger because the U.S. government recently privatized the uranium-processing operation that was to handle much of the work. The 1992 deal was aimed at ensuring proper control over highly enriched uranium from dismantled Russian nuclear weapons while providing hard currency–estimated at up to $12 billion over a twenty year period–for Russia’s cash-starved government. But the privatization of the United States Enrichment Corporation (USEC) has raised Russian suspicions. USEC has some seventy million tons of its own uranium that it would like to sell on the world market, a development that could lower world prices and cut into Russian revenues from its own uranium sales.

Russia and the United States did reach an agreement during Gore’s July 23-24 visit in which the two sides pledged to work together to explore methods of managing some fifty metric tons of plutonium from dismantled Russian nuclear weapons. The joint effort will focus on converting plutonium into an oxide that would be used in mixed uranium-plutonium dioxide (MOX) pellets. MOX could be used to fuel nuclear power reactors. The MOX approach has been a controversial one in the United States, however, because of concerns that the use of MOX fuel in fast-breeder reactors could result in fissile material suitable for use in building nuclear weapons.

CASPIAN COUNTRIES SUPPORT NON-RUSSIAN ROUTES FOR OIL AND GAS PIPELINES

The deadline is approaching for a final official choice of the main export route for Azerbaijani oil. At the same time, declining world prices for oil necessitate guaranteeing the profitability of that route by increasing the export volumes. To do so, trans-Caspian oil and gas pipelines from Turkmenistan and Kazakhstan are now being planned which would branch into, or parallel, the main oil export pipeline out of Baku. That pipeline seems increasingly likely to go to Ceyhan in Turkey. Russia opposes that looming decision and is mounting two rearguard battles: against sectoral division of the Caspian Sea and in favor of a Russian export route to Novorossiisk.

CONCEPTUAL CONFUSION ON CASPIAN STATUS

Russia’s First Deputy Foreign Minister Boris Pastukhov held talks in late July in Baku with President Haidar Aliev and other Azerbaijani officials on defining the Caspian Sea’s legal status. Pastukhov called for dividing the sea floor among riparian states along a negotiable “median line,” while leaving the water body, the surface, and the airspace under common jurisdiction. The senior diplomat, who oversees Moscow’s Caspian policy, dropped an overdue hint as to what Moscow actually means by “modified median line” and “the fairness principle” in dividing the seabed. These formulae apparently imply drawing the line so as to leave on the Russian side certain oil and gas fields that had been developed or prospected during the Soviet period with all-Union investments.

In addition, Pastukhov expressed Moscow’s readiness to consider the creation of “territorial zones” of the riparian states up to a 10-mile, 12-mile, or 20-mile limit for customs control and possibly also for fishing purposes. However, shipping regulations and ecological protection would still be exercised collectively even in those national zones. Although billed as a concession, this proposal would seem to represent a step back from Moscow’s November 1996 and subsequent proposals. Those would have created 45-mile national zones while leaving the central part of the Caspian under a condominium regime.

The Russian official rejected outright the establishment of national borders in the Caspian Sea. Attempts to draw national borders may “lead to territorial disputes” and would make it impossible to “demilitarize” the Caspian, he warned. Azerbaijan for its part advocates national borders and demilitarization. Pastukhov cited the July 6 Russian-Kazakh agreement as a possible model for the other states to follow in working out the Caspian’s status. That document, however, abounds in vague provisions subject to arbitrary interpretation and in formulae that require further definition. When signing it, Presidents Boris Yeltsin and Nursultan Nazarbaev described it as primarily a political document and conceded that it requires follow-up negotiations. (See Fortnight in Review, July 10)

Moreover, Pastukhov reaffirmed Moscow’s position that the Russian-Kazakh agreement does not affect the 1921 Russian-Persian and 1940 Soviet-Iranian treaties. In Moscow’s oft-stated view, those two documents continue to define the Caspian’s status until a new status is worked out. However, those treaties have been superseded de facto and de jure since 1991 by the emergence of three internationally recognized independent countries on the Caspian littoral. Moreover, those two obsolete agreements between Moscow and Tehran do not deal with mineral resources–the principal stake in the current negotiations. The growing maze of overlapping and mutually inconsistent Russian proposals would create legal chaos in the Caspian Sea if they–or just some of them–were ever to be adopted. Such proposals will probably continue to be politely ignored, and may for that reason continue to stream out of Moscow in new variations, even as the interested countries proceed with mineral development.

Aliev and his senior foreign policy adviser, Vafa Guluzade, responded by reaffirming Azerbaijan’s stand for division of the sea floor, the water body and surface, and the airspace into national sovereign sectors, in accordance with international law and with the Azerbaijani constitution. Guluzade, moreover, publicly dismissed as “pretexts” Pastukhov’s opposition to trans-Caspian pipelines for “environmental” reasons. That is “merely an attempt to route all pipelines through Russia and Iran,” Guluzade remarked. He also noted that Russia itself had “inflicted unparalleled ecological damage on the Caspian Sea.”

UKRAINIAN ROLE IN OIL TRANSIT ENCOURAGED

Aliev and Pastukhov disagreed just as strongly over the choice of export routes for Caspian oil. The Azerbaijani president reaffirmed his “definitive decision”–concerted with the U.S., Turkey and other countries–for laying the main export pipeline from Baku via Georgia to Turkey’s port Ceyhan. Pastukhov insisted on routing a sizable share of the future (“big”) Caspian oil to Russia’s Black Sea coast for re-export. The Russian route is not only unappealing to the other countries (see below), but is now being eclipsed by a far more realistic transit alternative that Ukraine has recently offered (see Fortnight in Review, June 12). The Ukrainian alternative can doom the circuitous Novorossiisk route, which Russia advocates primarily for political reasons. In lieu of a direct comment on the Russian export route, Aliev announced that he supports Ukraine’s proposal to transit part of the Caspian oil directly to Central Europe. Aliev made this announcement as he emerged from the talks with Pastukhov–a timing that adds to the announcement’s significance. The Azerbaijani president cast this choice in the wider context of political cooperation between Azerbaijan and Ukraine and their “identical views on CIS and international issues.” This response confirms that Baku regards Ukraine’s proposal as a potential complement, not rival, to the Turkish main route.

TURKMEN GAS EXPORT ROUTE TO BYPASS RUSSIA AND IRAN

Also in late July, President Saparmurat Niazov and other Turkmen officials conferred with U.S. and Turkish presidential envoys about piping Turkmen gas across the Caspian Sea, Azerbaijan, and Georgia to Turkey and further to European markets. The envoys informed Ashgabat that the U.S. and Turkish governments have decided to act jointly in supporting the project politically and financially. The governments will provide guarantees to private investors and will also make available government credits in the billion-dollar range. During the talks in Ashgabat, the Turkmen government awarded the feasibility study to a U.S. company with a November deadline, indicating a sense of urgency behind the project.

Since Russia has blocked the transit of Turkmen gas to Europe, all the interested countries agree on the need to develop a non-Russian route for Turkmenistan’s huge gas export potential. In addition, Turkey now publicly agrees with the U.S. on the desirability of avoiding an Iranian route as well. The Turkmens reaffirmed their full support for the trans-Caspian pipeline bound for Turkey; but they also suggested that the start of construction work may be linked to a resolution of Turkmen-Azerbaijani differences over the legal status of three oilfields in the Caspian Sea. The U.S. has offered its good offices. Washington and Ankara take the position that the start of pipeline construction work would increase the incentives for an amiable resolution of the oilfield dispute.

The U.S. companies Amoco, General Electric, and Bechtel recently announced the formation of a consortium to lay the gas pipeline from Satlyk and Turkmenbashi, on the Caspian sea floor to Baku, and via Azerbaijan and Georgia to Turkey. The pipeline’s projected length is 1,700 kilometers; its estimated cost, at least $2.4 billion. The line’s planned throughput capacity is 10 billion cubic meters annually in the first stage, potentially to grow to 35 billion in the final stage.

RUSSIAN TRANSIT OPTION FOR OIL NOT QUITE DEAD…

The Russian plan envisages laying a large-capacity pipeline from Azerbaijan via the North Caucasus to Russia’s Black Sea port Novorossiisk. Once there, the Caspian oil would supposedly be sent southward again, this time by tankers through the Bosporus, before reaching Mediterranean markets. Moscow itself can hardly muster the resources for laying a main export pipeline and modernizing the Novorossiisk terminal to the extent required. However, the Banque Nationale de Paris has recently agreed to open a $70 million credit line for the construction of a second oil terminal at Novorossiisk. The French construction company Bouygues is set to serve as the main contractor for the project. The terminal is planned at an annual handling capacity of 15 million tons and a size sufficient for accommodating super tankers of up to 200,000 tons. The first terminal of this size in Novorossiisk was completed in 1988. The second terminal is supposed to amortize the investment within 4 years and to cover its operating expenses, provided it is utilized at full capacity.

…BUT “THE BOSPORUS IS NO PIPELINE”

That projection for Novorossiisk, predicated on large amounts of Azerbaijani oil being diverted there, is overly optimistic. The route via the North Caucasus to Novorossiisk is circuitous and insecure. It would also increase greatly and unnecessarily the distance and transportation time from the oil source to the market. The plan has found favor with none of the producer, investor, and transit countries involved in Azerbaijani oil projects. Moscow rests its remaining hopes on Kazakhstani oil which it plans to divert to Novorossiisk. However, six years after the formation of the consortium that would lay a pipeline from Kazakhstan to Novorossiisk, a start to construction work is not yet in sight.

Moreover, sending the oil down the Bosporus would choke the already crowded strait with tanker traffic, severely interfere with the other shipping, and pose safety threats that Turkey finds unacceptable. Therefore, Turkey is determined to block the transit of additional amounts of oil through the straits. If Moscow, opposing as it does the Baku-Ceyhan pipeline, insists on the Bosporus as a substitute pipeline for Russian benefit, Turkey is ready with an answer. The Turkish special envoy for Caspian oil issues, Yaman Bashkut, has just stated in Baku: “Let no one have illusions that the oil will be transported through the straits. The straits are no pipeline. The opponents of the Baku-Ceyhan pipeline project must understand that.”