Using an old Stalinist tactic, Russia is exploiting local ethnic feuds in neighboring lands on the pretext of protecting minority Russian speaking populations.  Putin intends to reverse what he characterized several years ago as “the greatest geopolitical catastrophe” of the 20^th century – the dismemberment of the Soviet Union.  However, while Stalin expanded Russia’s power by brute military force and ideology, Putin is using the stranglehold Russia has on key energy resources needed to fuel the economies of Europe and Asia.

Russia owns approximately 27.5 per cent of the world's proven gas reserves and is responsible for 21.6 per cent of global gas production.  It owns approximately 6.2 per cent of the world's proven oil reserves and is responsible for about double that amount in global crude oil production.  Russia’s economy has largely recovered to place within the top ten economies in the world because of the revenues flowing in from its petro and gas revenues.

Putin believes that Russia has now reached the point that he can use its energy–derived leverage as a strategic weapon to rebuild its empire.  Thus, Russia’s invasion of Georgia was not only about defending the break-away Georgian provinces of South Ossetia and Abkhazia.  It was also a shot across the bow to signal that Russia has the military power to disrupt oil and gas pipelines transiting any of its former Soviet republics whenever it wishes.  This includes the 1,100 mile Baku-Tbilisi-Ceyhan pipeline in Georgia, which does not pass through either Russia or Iran but is clearly vulnerable to a military attack or sabotage.

James L. Williams, publisher of the Energy Economist newsletter, summed up Russia’s objectives this way in an interview with the Los Angeles Times:

"For Russia, control of Georgia and the pipeline would restore much of its influence over many of the former satellites of the U.S.S.R.  It would have the clear benefit of increasing Russia's energy chokehold on Europe."

In the short run, through such intimidation, Russia is seeking to throw cold water on any Western plans to expand NATO membership to former Soviet republics near Russia’s borders.  The missile defense deal just signed between the United States and Poland was a good push back, but Putin is unlikely to get the message.  At minimum, he can be expected to replay his action of cutting oil supplies to the Czech Republic when it decided to enter into a missile treaty with the United States.   More ominously, Putin’s puppet President Dmitry Medvedev was quoted just recently by the RIA-Novosti news agency as threatening ”to react, of course, in a military way."

Russian officials have warned the United States to choose "a real partnership" with Moscow over an "illusory" relationship with countries within Russia’s sphere of influence such as Georgia.   However, Russia is offering an illusory choice of its own which we must forcefully reject.  We must stand instead with duly elected democratic governments over Russia’s territorial ambitions.  Russia evidenced its real intentions by officially recognizing the independence of the secessionist South Osssetia and Abkhazia Georgian provinces in defiance of past unanimous UN Security Council resolutions and then announcing that South Ossetia has agreed to ultimately join “one united Russian state.”

Russia’s “real partnership” is with the rogue, terrorist-sponsoring states of Iran and Syria. Despite paying lip service to the goal of preventing Iran from developing a nuclear weapon, Russia has run interference for Iran in the UN Security Council to block any meaningful economic punishments for Iran’s refusal to suspend its nuclear enrichment program.  And it has continued to supply nuclear fuel for Iran’s Bushehr power plant that Russia helped Iran build, accepting Iran’s ‘assurances’ that it will only be used for ‘peaceful’ purposes.

Against this political backdrop, Iran and Russia - each an energy giant in its own right - are working behind the scenes to turn the Gas Exporting Countries Forum into a cartel along the lines of the Organization of the Petroleum Exporting Countries.  Russia’s own oil and gas reserves, its captive customers in Europe and Asia, and its control of key export routes already provide it with significant leverage over the world’s energy markets, but it wants to lead the economic equivalent of the old Warsaw Pact.

Russia has also forged a military relationship with Iran and its partner in sponsorship of terrorism, Syria.  Some of the arms that Russia has sold to Iran and Syria for their own use have ended up in the hands of Hamas and Hezbollah.  Indeed, Russia has taken the side of the radical Islamists who have argued that these terrorist groups are legitimate liberation movements.  Not surprisingly, however, Russia regards the Chechens, who are fighting for their own freedom from Moscow’s grip, as out-and-out terrorists.

As long as Russia continues on this path, we should work with our allies to isolate it from the international community in areas where it matters.  This could include denial of membership in the World Trade Organization and expulsion from the annual ‘Group of Eight’ summit meetings.

Investors are already voting with their feet, pulling an estimated $25 billion or more from Russia since Russia’s invasion of Georgia.  If coupled with actions to sharply reduce reliance on oil and gas exports from Russia and other autocratic energy producing countries, Russia and its allies will lose their economic clout and hence the source of revenue for their military adventures.  China is an essential partner to help us make this happen.

China is sometimes lumped together with Russia as an implacable adversary of the United States.  However, this perception focuses too much on the obvious similarities between Russia and China, while ignoring the fundamental difference in worldview and strategic objectives of the two countries.  It is this difference that makes isolation of Russia and cooperative engagement with China the right strategies for the United States. 

It is certainly true that China, like Russia, has little regard for individuals’ political freedoms or human rights, which they each see as threats to a stable society under government control.  That was made dramatically clear by China’s use of excessive force in dealing with Tibetan protests earlier this year and by China’s suppression of dissent during the Olympics.

It is also true that China, like Russia, has significant economic ties with Iran, which has motivated China to help Russia shield Iran from any meaningful UN sanctions.  Like Russia, China has sold arms to the terrorist-sponsoring regimes of Iran and Syria, some of which have ended up in the hands of Hamas and Hezbollah.  China has also indicated its willingness to recognize and work with these two terrorist organizations.

This is all about China’s growing need for energy, as it aggressively competes with the United States to secure the most advantageous terms and assured sources of supply in the Middle East and elsewhere.  China will support some of the world’s worst offenders of human rights, including Sudan and Iran, and will side with the Israel-bashing Organization of Islamic Conference in the United Nations in order to ensure that its energy needs are met from the Muslim states that also happen to be among the world’s largest oil suppliers.

Russia has also positioned itself as a major supplier to China.  For this reason, and the fact that China shares with Russia the desire to recreate a multi-polar world where the United States would lose its unchallenged dominance, China and Russia have entered into security and economic alliances and have conducted joint military exercises.

However, there are major differences between China and Russia that the United States would be well-advised to consider in differentiating how it deals with each of them.   

China, one of the world’s biggest consumers of energy, has embraced a future of economic vibrancy that depends on its integration into the global market and institutional framework. 

Russia, the second largest energy producer in the world, has reverted to its czarist and Stalinist practices of the past.  But Putin can only go as far as his energy revenue-supported economy will permit.

Russia and Iran have an identity of interests as energy producers, using their control over significant natural resources to enhance their economic and political power against the West.  As an energy consuming nation, China’s long-term interest in reducing its dependence on fossil fuels is the same as the United States and other energy consuming nations, whose domestic production of oil and gas will not come close to meeting their total needs.

In short, the United States and China are facing the same energy challenges: increasing dependency on foreign sources of energy and high-energy prices. Russia and Iran, on the other hand, have strong economic and political incentives to exploit these vulnerabilities.

According to the Department of Energy, China has become the world's second largest energy consumer after the United States.  China's need for energy is projected to increase 89 percent by 2020.  The Energy Information Administration projects that by 2025 (assuming current trends) China's demand for energy will surpass that of the United States, accounting for some 20 percent of total world demand. 

Whatever short-term strategies in line with Russian and Islamic interests that China is now pursuing to meet its current energy requirements, China’s voracious appetite for energy will continue to grow to the point that it is only a matter of time until China is forced to confront the intractable divergence of interests it has with the world’s leading energy producing states.  Russia and Iran have far more in common with each other than either of those countries has with China.

The fact is that Russia and Iran would be economic basket cases without their oil and gas reserves and the current high levels of energy prices.  They are not integrated into the global economy to any significant extent.  While limiting their growth potential if energy prices decline substantially, their relative distance from global economic institutions frees them from the constraints of the rules that come with being a part of such institutions. 

China’s relationship with the global economy is at fundamental variance with the Russian-Iranian paradigm.  China’s rise as an emerging superpower is largely a result of its breathtaking economic success.  Particularly since China’s accession to membership in the World Trade Organization in 2001, China’s economy has become highly sophisticated and diversified.  Its exports are moving up the value chain.  It is attracting major direct foreign investments.   China was the third largest recipient of foreign direct investment in the world, behind only the United States and the United Kingdom, in terms of the average value of inflows between 2000 and 2006.   Russia was 18^th on this list during this same period.  By way of comparison, China had 140% more foreign direct investment than Russia in 2006.  China is the world’s largest holder of foreign-currency reserves

All of this in turn has been helped along considerably by China’s willingness to play by the rules of the global economic market.  For example, China has reduced tariff rates, eliminated non-tariff barriers, provided improved market access to goods and services imported from the U.S. and other World Trade Organization members, and improved transparency.  While it is certainly true that China still has protectionist policies, an opaque regulatory regime and loose enforcement of intellectual property laws, it is definitely moving in the right direction toward a more open, entrepreneurial, capitalistic economy.  

The political desire to counterbalance U.S. power and its short-term energy needs may push China in centrifugal fashion toward Russia and Iran, but the centripetal force of China’s interdependency with the world’s free market economies will be more likely to prevail if we engage China on the basis of mutually shared objectives.  Economic globalization and energy cooperation among the world’s leading economies that rely on energy consumption for economic growth are inextricably linked.   

With this in mind, the China-U.S. Energy Policy Dialogue was launched several years ago to facilitate policy level discussions on a range of energy issues, including energy policy making, supply security, energy efficiency, renewable energy, and energy technology options. At an even higher level, the China-U.S. Strategic Economic Dialogue was initiated a couple of years ago, in which Secretary of the Treasury Henry Paulson has had regular and broad-ranging discussions on economic policy with the Chinese leadership.

Such dialogues are great, but now it is time to move aggressively beyond the policy talk and undertake concrete actions with achievable results.

To this end, the United States should press for China’s inclusion in the International Energy Agency, which acts as energy policy advisor to its member countries and focuses on climate change policies, market reform, and energy technology collaboration.  The United States should also offer to coordinate with China the use of the two countries’ national strategic petroleum reserves to counter spikes in oil and gas prices and to deal with unexpected disruptions in supply.

Moreover, the United States should work with China to build joint laboratories and research and development centers for conducting alternative energy R&D projects.  Product pilots in both countries can then be conducted and observed by representatives from both countries.   Such cooperation, which can be expanded to include other major energy consuming nations as well, should include committed funding, private-public partnerships with coordinated tax incentives and open sharing of technical information. 

Solar power, for example, would provide excellent opportunities for cooperation.  China is a leader in this area already but realizes it needs more capital, more markets for its products and technological assistance from the West to succeed.  Thus, China has strong incentives to share its know-how as part of projects that could include cooperation on equipment design and manufacturing technology, the construction of international testing centers, more direct foreign investment in production facilities and purchase commitments from Western governments and the private sector.

It is true that China’s economic reforms and embrace of capitalism have not led to political reforms and embrace of democracy.  This may turn out to be only a time lag phenomenon, however.  If China’s economic prosperity continues to grow at a vigorous rate, a larger middle class will develop who will in turn create the kind of civil organizations from the bottom-up that are usually the precursor to political change.  This is not likely to happen in Russia, where a sudden leap into capitalism during the 1990’s ended in disaster.  The country instead is reverting to its authoritarian roots.

Appearances are deceiving.  Despite some similarities, Russia and China are two very different countries on two divergent paths.   We would do well to recognize and exploit these differences.