Tag Archives: russia

Why Germany Loves Russia

Chancellor Angela Merkel’s deputy chided Siemens AG (SIE) Chief Executive Officer Joe Kaeser for traveling to Moscow, saying German companies shouldn’t sell out European values to protect business with Russia.   The conflict over Kaeser’s meeting with President Vladimir Putin last week underscores the rival forces tugging at Merkel during the crisis in Ukraine. While the European Union and the U.S. seek to punish Russia for annexing Crimea, many German corporate leaders view Putin as an economic partner.

Frankly, I found the scene a bit off-key,” Economy and Energy Minister Sigmar Gabriel, a Social Democrat who is also vice chancellor, said of Kaeser’s trip to Moscow in an interview with ARD television yesterday, according to an e-mailed transcript. “We don’t want economic sanctions, but we also have to show the Russian president that we can’t accept” his “imperial policy.”

Merkel, who learned Russian while growing up in communist East Germany, heads Russia’s biggest EU trading partner during the worst standoff since the end of the Cold War. Putin risks a “tough reaction” from EU governments if he escalates the crisis over Ukraine, she said on March 26.  While Merkel has said Germany could withstand the economic impact of European economic sanctions against Russia, the heads of Adidas , ThyssenKrupp  and Deutsche Post questioned the need for sanctions, according to the transcript of a round-table interview with the Die Welt newspaper published two days ago. It showed the CEOs saying EU policy makers mishandled their engagement with Ukraine while affronting Russia.

Asked if Putin must be stopped, Adidas CEO Herbert Hainer said, “I’d turn the question around,” according to Die Welt. “I wonder if one shouldn’t have included Putin in the process much earlier, rather than starting talks when it’s too late.” ThyssenKrupp CEO Heinrich Hiesinger said “Russia felt cornered.” Deutsche Post CEO Frank Appel said the U.S. and its allies had meddled “in the front yard of another big power” and questioned calls by EU leaders including Merkel to review Europe’s energy ties with Russia, saying Germany “will always be dependent on others” for fossil fuel, according to Die Welt.

Kaeser said meeting with Putin showed that Munich-based Siemens, Europe’s biggest engineering company, “won’t be overly influenced by short-term turbulences” involving Russia. “We’re counting on dialogue and mutual understanding,” he said in a ZDF television interview after returning from his trip, which he said Merkel’s chancellery knew about in advance.

By Tony Czuczka, Siemens CEO Rebuked as German Business Defends Putin Partnership Bloomberg, Mar 30, 2014

Gas as Tool of Foreign Policy: Gazprom

The good times for Gazprom once seemed like they would never end. The world’s largest natural-gas producer, founded out of the old Soviet gas ministry, enjoyed sky-high gas prices for years. The gas flowed along pipelines into Europe; the profits flowed back. Gazprom began work on a $1.9 billion headquarters in St Petersburg and acted as a bottomless wallet for Russia’s rulers. Whatever problems it encountered, it could “drown with money”, as Natalia Volchkova of the New Economic School in Moscow puts it.  All this is now under threat. Its ageing gasfields are in decline. Thanks to America’s shale boom, gas is more plentiful on the world market. Gazprom’s European customers are realising that they have other choices. The prices it can charge are falling, and with them the firm’s prospects.

Years of easy money have made Gazprom fat and slow. It dominates its domestic market, producing 75% of Russia’s gas. It enjoys a monopoly over exports of the stuff. Until recently, it had a tight grip on western Europe, where it supplies around 25% of gas. It retains an even tighter grip on former Soviet-bloc countries in eastern Europe. For a long time, this insulated Gazprom from shifts in global gas markets.

Gazprom is not a normal company. It serves two masters. As a firm that issues shares to outside investors, it should in theory strive to maximise profits in the long run. But since it is majority-owned by the Russian state, it pursues political goals, too.  In practice, it serves one master more assiduously than the other. As President Vladimir Putin consolidated his power in the early 2000s, he built Gazprom into a main instrument of Russia’s new state capitalism. He appointed allies to top positions. He used Gazprom as a tool of foreign policy, for example by cutting off gas supplies to Georgia, Ukraine, Belarus and Moldova during political rows.  Gazprom’s deep pockets have helped Mr Putin at home, too. It sells gas cheaply in Russia, so that the poor do not freeze in winter. Oddly for an energy company, it has bought television stations and newspapers, all of which are now friendly to the Kremlin. Mikhail Krutikhin of RusEnergy, a consultancy, says, “Gazprom has one manager: Putin.”

With friends in high places, Gazprom has enjoyed low taxes and privileged access to gasfields. But its costs are startlingly high…And some projects favoured by Mr Putin are of questionable economic value. For example, he is dead set on building a $21-billion South Stream pipeline between southern Russia and Austria via eastern Europe. This project has political appeal because it would bypass troublesome Ukraine as the main transit route for gas to Europe. But given weak prices and demand, it is “commercial idiocy”, says Mr Krutikhin. The opening in 2011 of Nord Stream, an offshore pipeline to Germany, was a diplomatic coup for Mr Putin, but it is still running far below capacity….

Gas on the spot market is often much cheaper than Russian gas delivered under long-term contracts… Because so many of its customers are tied to contracts, the full effects of the global gas glut on Gazprom’s bottom line will not be felt straight away….   The final threat to Gazprom’s old way of doing business is legal. An antitrust probe launched by the European Commission alleges that Gazprom is using its dominant position in central and eastern Europe to restrict competition and hike prices. If it loses the case, it could face a fine of up to $14 billion and lose the mighty lever of being able to charge some European countries more than others.  An adverse ruling might also threaten its strategy of trying to dominate the European gas market by owning both the supplies and the means of distributing them. Gazprom has quietly bought gas pipelines and storage facilities. It has tried to strike deals whereby it lends money to impoverished European utilities in order to secure their custom. If this strategy stops working, Gazprom will no longer be such a potent foreign-policy tool for the Kremlin….

Gazprom’s future may involve more robust competition even at home. Two domestic rivals have emerged: Novatek, a gas producer part owned by Gennady Timchenko, an old acquaintance of Mr Putin’s, and Rosneft, a state-owned oil firm led by Mr Putin’s trusted adviser, Igor Sechin. Put together, non-Gazprom firms now account for a quarter of all Russian gas production….

The other way to get gas to Asia would be via pipeline. The obvious destination is China, which sits on Russia’s doorstep and is potentially the world’s biggest market for gas. The two countries have haggled unsuccessfully for a decade. In February they revealed they had agreed to everything related to pipeline exports apart from the price. China has signed up to import gas from Central Asia, Australia, the Middle East and west Africa; almost everywhere, in fact, except Russia. China refuses to pay Asian prices; Gazprom won’t budge.

Gazprom: Russia’s wounded giant, Economist, Mar. 30, 2013, at 69

US Special Forces in Iraq to Stop Russia

The civil war in Syria is testing Iraq’s fragile society and fledgling democracy, worsening sectarian tensions, pushing Iraq closer to Iran… just nine months after American forces ended their long and costly occupation here.  Fearing that Iraq’s insurgents will unite with extremists in Syria to wage a two-front battle for Sunni dominance, Prime Minister Nuri Kamal al-Maliki recently ordered guards at the western border to block adult men…along with thousands of refugees seeking to escape the grinding war next door.  Farther north, Iraqi officials have another concern, also related to the fighting across the border. Turkish warplanes have stepped up attacks on the mountain hide-outs of Kurdish insurgents galvanized by the war in Syria, underscoring Iraq’s inability to control its own airspace.

The hardening of the antagonists’ positions in Syria — reverberating across Iraq — was made clear Monday at the United Nations when the new special envoy for Syria, Lakhdar Brahimi, gave a bleak appraisal of the conflict to the Security Council and said he saw no prospect for a breakthrough anytime soon.

The Syrian war’s spillover has called attention to uncomfortable realities for American officials: despite nearly nine years of military engagement, an effort that continues today with a $19 billion weapons sales program, Iraq’s security is uncertain and its alliance with the theocratic government in Tehran is growing. Iraq’s Shiite-dominated leadership is so worried about a victory by Sunni radicals in Syria that it has moved closer to Iran, which shares a similar interest in supporting the Syrian president, Bashar al-Assad.,,,

In response, the United States has tried to secure its interests in Iraq. It has unsuccessfully pressed Iraq to halt flights from Iran that traverse Iraqi airspace to ferry weapons and fighters to the Assad government, although The Associated Press reported that over the weekend a government spokesman said Iraq would begin random searches of Iranian aircraft.  While some Congressional leaders have threatened to cut off aid to Iraq if the flights do not stop, the United States is trying to speed up weapons sales to Iraq to secure it as an ally, said Lt. Gen. Robert L. Caslen Jr., the American commander in charge of that effort. As regional security deteriorates, the United States is finding it hard to deliver the weapons — especially antiaircraft systems — quickly enough to satisfy the Iraqis, who in some cases are looking elsewhere, including Russia.

“Although they want a strategic partnership with the United States, they recognize the vulnerability, and they are interested in going with the nation that will be able to provide them, and meet their need, their capabilities gap, as quickly as possible,” said General Caslen, who oversees a Pentagon office here, under the authority of the American Embassy, that brokers weapons sales to Iraq.  The United States is providing Iraq with refurbished antiaircraft guns, free of charge, but they will not arrive until June. In the meantime, the Iraqis have collected cold war-era missiles found in a junkyard on an air base north of Baghdad, and they are trying to get them in working order. Iraq is negotiating with Russia to buy air defense systems that could be delivered much more quickly than those bought from the United States.

“Iraq recognizes they don’t control their airspace, and they are very sensitive to that,” General Caslen said. Each time Turkish fighter jets enter Iraq’s airspace to bomb Kurdish targets, he said, Iraqi officials “see it, they know it and they resent it.”  Iskander Witwit, a former Iraqi Air Force officer and member of Parliament’s security committee, said, “God willing, we will be arming Iraq with weapons to be able to shoot down those planes.”

The American military withdrew at the end of last year after negotiations for an extended troop presence collapsed because the Iraqis would not agree to extend legal immunities to any remaining force. Once the Americans left, Iraq celebrated its sovereignty, even as military officials in both countries fretted about the deficiencies of Iraq’s military and sought ways to work together that would not require a public debate about immunities.  Iraq and the United States are negotiating an agreement that could result in the return of small units of American soldiers to Iraq on training missions. At the request of the Iraqi government, according to General Caslen, a unit of Army Special Operations soldiers was recently deployed to Iraq to advise on counterterrorism and help with intelligence.

Excerpts from TIM ARANGO, Syrian War’s Spillover Threatens a Fragile Iraq, NY Times, Sept. 24, 2012