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Russia in Crisis By: Ariel Cohen
FrontPageMagazine.com | Friday, March 11, 2005

The violent demise of Aslan Maskhadov, the former President of Chechnya and the supreme commander of the Chechen militant forces is Vladimir Putin’s short term gain, but may be his long term loss.  The late Chechen leader was a former Soviet artillery colonel and essentially a secular nationalist until the recent rise of militant Islam in the region. Moreover, in January he declared a unilateral ceasefire, calling for peace talks with the Kremlin.

With Maskhadov’s killing, Moscow loses the opportunity to split the Chechens between the more secular supporters of national independence and radical Islamist “jihadi” terrorists led by Shamil Basaev. Wahhabi fighters, with their global networks of financial support and training, would want nothing better than having Basaev as the Amir (supreme military commander) of North Caucasus – without Maskhadov’s meddling.


The Islamist goal of the North Caucasus Califate – a militaristic Shari’a based dictatorship between the Black Sea and the Caspian just got a bit closer. As the result, terrorism will increase, and so will “jihad” in North Caucasus, including republics of Dagestan, Ingushetia, and Kabardino-Balkaria, where Russian security forces are increasingly engaged in fighting terrorists. Likelihood of terror mega-attacks, like the one in a school in Beslan in September 2004 will also grow, unless Basaev is quickly killed or captured.


Nevertheless, Putin badly needed a victory of this magnitude, and the secret service, known as FSB, has brought him one – on the International Women’s Day, no less. Now, the falling ratings may start climbing back. Or not. One year after Vladimir Putin handily won a second presidential term, his domestic and foreign challenges are snowballing, and his aura of almost superhuman invincibility is quickly dissipating. This is not to say, however, that Putin should be looked down upon or counted out: He is still in control.


U.S. interests in Russia include cooperaton on terminating Iran’s nuclear arms program, non-proliferation, the global war on terrorism, Russian membership in WTO, bilateral energy and economic cooperation, and other issues. President George W. Bush, who met Putin in Bratislava, Slovakia, on February 24th, decided to maintain a solid working relationship with the Russian president, while supporting the forces of democracy, tolerance, open markets and civil society in the long term. This balancing act is not an easy task.


·  Crisis of Confidence. The Putin Administration is facing a crisis of confidence. Beslan was a particularly hard blow, and the assassination of a trusted Chechen leader, the former mufti Ahmad Kadyrov on March 9, 2004, was another one.


Russian Prime Minister Mikhail Fradkov’s Cabinet survived a Duma vote of no confidence on February 9th, but the real target of the abuse heaped on the Prime Minister by the nationalist and leftist opposition parties (which are artifacts of power elites) was never in doubt—Mr. Putin himself.


Conversations with several senior politicians in Moscow reveal that the ruling class in uneasy with the country’s perceived lack of domestic and foreign policy direction. Consequently, a 2008 transition to a successor hand-picked by Putin is no longer a sure thing. Neither is passage of a series of constitutional/legislative changes that would guarantee Putin’s continued rule as Prime Minister after two presidential terms—with enhanced powers such as control of defense, the security services, and the legal system.


Russia’s political malaise has set in despite high oil prices and a gross domestic product (GDP) growth rate of around 7 percent—robust by any standards. Still, a 20 percent drop in Putin’s popular support leaves one to speculate how quickly the situation could deteriorate if oil prices tumbled. The climate of stagnation and uncertainty manifests itself in numerous areas, including:


·  Failure to attain the kind of growth that would be needed to realize Putin’s proclaimed goal of doubling the GDP by 2010. Deteriorating investor confidence in the wake of the YUKOS affair quadrupled capital flight in 2004. Investors are voting with their feet, while the elites perceive this as a failure to achieve an important national target.


·  Monopolization of state power by a small group of Putin loyalists. This comes primarily from the St. Petersburg security services and mayor’s office, where Putin worked in the early 1990s. This group has overtaken state owned companies, the justice system and courts, and even some private companies. Russians complain that this coterie controls the “financial flows,” leaving precious little to other elites in terms of opportunities for enrichment, and making the political and economic system fundamentally unfair. If Putin is perceived by this group as being too weak, it may attempt to remove him. However, this power/wealth imbalance raises stakes for the anti-Putin coalition in the future, and increases the incentive to dilute or terminate the power of the St. Petersburg group—through the ballot box or by other means if necessary.


·  A widespread perception that the current Prime Minister and his cabinet are failures. Most recently, the Cabinet bungled social welfare reform that was supposed to replace in-kind benefits for the elderly with monetary payments. Inadequate planning and poor execution led to the largest campaign of street demonstrations since Putin’s came to power in 1999. The forthcoming reform of subsidized housing and utilities, if implemented equally poorly, could further damage the regime’s prestige. Putin’s attempts to appease the protesters by paying increased sums to officers, military retirees, students, and others—while simultaneously boosting the FSB and military budgets—have created an impression of weakness and indecision. He can always sacrifice the Cabinet and Prime Minister, turning them into scapegoats and dampening social tensions.


·  Protectionism and economic nationalism. Recently, the Minister of Natural Resources announced that access “non-Russian resident companies” (foreign and Russian owned off-shores) will be denied involvement in developing Russian natural resources, such as oil, gold, and other minerals. This approach will allow Russian companies with dubious connections to the Ministry or the Kremlin to successfully bid for lucrative licenses while excluding foreigners and “undesirable” Russians. Such an approach depresses sales of mineral extraction licenses and denies the Russian government much needed revenue.


·  Failure to conduct the “de-oligarchization” of YUKOS. This should have been done in a manner that could be perceived as clean, legal or fair. Instead, the ham-handed, opaque disembowelment of YUKOS by the Prosecutor-General’s office and tax authorities turned Russia into a nightmare and her government into a villain, as far as many Western investors are concerned. Given that Standard and Poor’s rating agency has upgraded Russian sovereign debt as investment grade (BBB-) due to the International Monetary Fund debt early repayment, positive balance of payments, and budget surplus, the YUKOS affair has cost Russia tens of billions of dollars of opportunity cost in lost investment. Putin’s chief economic advisor, Andrey Illarionov, openly termed the sale of the YUKOS main production unit, Yuganskneftegaz, the “swindle of the year.”. Russian elite is split over the YUKOS affair and the direction of economic policy.


·  Denying Western oil companies access to Russia’s energy resources. These resources include the Sakhalin Island fields. Exxon announced its withdrawal after the Russian Energy Ministry demanded a payment of $1 billion to continue developing the field. Russia is also likely to turn down the possibility of building a pipeline from Western Siberia to the Arctic warm water port of Murmansk to sell oil to the U.S. Instead, Moscow may opt for a $12 billion dollar, 3500-mile pipeline from Taishet in Siberia to the port of Nakhodka on the Pacific to supply oil to the Asian Pacific region, including Japan, Korea, and China.


Policy Confusion


Russia’s policy fiascos are multi-dimensional. Policies fail when private or corporate, bureaucratic interests are put above raison d’etat in a manner the regime of Nicholas II did in the early 20th century. Policy makers allow themselves to fall back on Soviet clichés and stereotypes, or even on their czarist-era precursors. An example would be opposing the U.S. policy on Iranian nuclear disarmament, “not because of Iran, but because it pushes us into a corner,” as one senior Russian lawmaker put it. He added that U.S. unilateral policies based on military superiority are unacceptable not only to Russia, but also to China, France, and Germany.


Russian foreign policy and defense establishment seems unable to design and implement policies that would further develop cooperation with NATO or fight Islamist (Salafi/Wahhabi) terrorism in Northern Caucasus. Russia washed its hands from promoting democracy in Belarus and Turkmenistan. It supplied SA-18 anti-aircraft missiles to terrorist-supporting regimes in Syria, and ignored strategic cooperation with the U.S. in Asia, where Moscow claims to perceive a long-term Chinese threat to the Russian Far East but is doing little to address it.


Currently, Russia is pursuing uneven, unpredictable, and counterproductive policies in the self-declared—and shrinking—sphere of influence nicknamed the “near abroad.” These policies, characterized by the increasing influence of the Federal Security Service (FSB), are sometimes conducted without the knowledge of, or coordination with, the Foreign Ministry or even the Security Council.


Who Lost Ukraine? Meanwhile, the hard-line circles are assailing the Putin Administration for failing to secure the election of pro-Russian politicians in Ukraine and Abkhazia despite vast expenditures of resources. One Russian lawmaker accused the FSB of carrying out operations in Abkhazia and Ukraine that went out of control, resulting in a black eye for Mr. Putin. These perceived foreign policy failures against a backdrop of great power rhetoric make Putin look weak in the eyes of that quasi-imperialistic political elite and could be used as arguments in a future bid to remove him.


 Ever since the 2003 Duma elections, democratic politics in Russia have deteriorated. Center-right Union of Right Forces and center-left Yabloko party failed to clear the 5 percent barrier. Some say this occurred with a little “help” from the Central Electoral Commission. This left the political scene dominated by the pro-government United Russia party, and the opposition, while still under control, is coming from ultra-nationalists of different stripes.


By canceling single-mandate electoral districts, shifting Duma elections to national party lists, and abandoning election of governors, Russia took a step back to “undemocratic” centralism and increased chances for high-level corruption as nominations can be bought and sold. Tight control of television by the Kremlin seems to backfire as media loses its already-low credibility.


Army and Security Services Obsolete. Security is a particularly sore spot in Russia. Despite the killing of Maskhadov, which the Kremlin will spin as a major success, FSB and policy fell short in preventing the mega-terrorist attacks in Beslan (the fifth such attack since 1995) and suicide bombings in the Moscow metro and on board two passenger planes in 2004. The Putin Administration failed to identify and punish security officials who allowed Beslan to happen, thus contributing to the sense that no one is responsible. It failed to comprehensively reform security services and armed forces, which are remnants of the 20th century totalitarian system much more than they are ready to face the 21st century threats of Islamist terrorism.


The Putin Administration is at a loss as to how to prevent Islamist extremism and terrorism from spreading from Chechnya to the adjacent republics of Ingushetia, Kabardino-Balkaria, and Dagestan in North Caucasus. This expansion threatens the Russian state with an open-ended jihad, while Russian territorial integrity is at stake. Eventually, Tatarstan and Bashkortostan may become increasingly Islamist.


Finally, the Kremlin failed to control, let alone reverse, ubiquitous corruption in the state apparatus. The Russian state did not succeed in becoming a reliable and civilized partner to domestic and foreign business—which would have provided the rule of law, predictable legislation and regulation, and property rights and investor rights that are not subject to political whims.




The U.S. needs to realize the depth of the malaise and crisis Russia is facing. The era of quick fixes is over, and U.S. advice is no longer welcome—if it ever was. Give-and-take, however, may still be the best diplomatic tool, as senior Russian officials say that many issues on the bilateral agenda are negotiable. Specifically, the U.S. should:


·  Request cooperation in neutralizing the Iranian nuclear weapons program, as it threatens Russia as well as the U.S. Specifically, all steps must be taken to prevent supply of Russian reactor fuel to the Bushehr reactor.


·  Foster Russian cooperation in the former Soviet areas, such as dispute resolution and troop withdrawals to end “frozen conflicts” in Moldova, Georgia (including Abkhazia and South Ossetia), and Nagorno-Karabakh;


·  Encourage the Kremlin to liberalize access to hydrocarbon and other natural resource sectors, as well as pipeline transportation, for Western investors. US should work with the Government of Russia to achieve divestment and privatization of the current ineffective state holding in these industries;


·  Condition progress of Russia’ World Trade Organization accession talks upon dismantling state monopolies and reversing opaque and protectionist practices in state economic management, especially in extractive industries;


·   Support democratization of Russian politics and media, especially the TV which is government-dominated. aEncourage Russia to promote private and public non-state TV channels; and


·  Clarify to Russia that the U.S. is not seeking its dismemberment and fully recognizes its territorial integrity from Kaliningrad in the West to Dagestan in the South.


Where Do We Go From Here?


Washington needs to keep its priorities vis-à-vis Moscow straight and emphasize security issues, such as disarming Iran, counter-terrorism, and non-proliferation. The rise of China is on the horizon, making politicians and generals sleepless both in Washington and Moscow. US and Russia should at least start comparing notes on this subject. China has no common border with the US, but it is thousands of miles long with Russia. Moreover, the two Eurasian giants fought in the 17th and the 20th centuries.


Lecturing Putin about democracy may not be effective: Carrots and sticks may work better. Russia is facing a period of political instability as the power elites jockey for positions in the parliamentary and presidential cycle of 2007–2008. The U.S. should not pick favorites or interfere, but rather adhere to the principles of transparency, democracy, and business cooperation, while protecting its own security, diplomatic, and economic interests in Russia and Eurasia.

Ariel Cohen, Ph.D., is Senior Research Fellow in Russian and Eurasian Studies and International Energy Security at the Sarah and Douglas Allison Center of the Davis Institute for International Studies at the Heritage Foundation.

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