Arctic Progress looks set to be an important blog covering a region that, until now, has received little mainstream coverage and certainly no real blog coverage that I’m aware of. And it seems as if Anatoly has picked a perfect time to launch his blog – arctic ice is melting, opening up direct shipping routes between Europe and Asia, oil deposits are being discovered all over the place (the latest is in Greenland), and the region’s ecology is in delicate balance, so whatever happens over the next fifty years will shape the destiny of this region, and perhaps even the world.

As Anatoly notes, “Arctic history begins this year… We are the observers of the start of a new era.”

Russia is one of the major countries with an interest in the region (others include the United States, Canada and the Scandinavian countries) so I’m sure that Arctic Progress will contain plenty of information relevant to Russia-watchers.

One interesting post relevant to Russia that’s already appeared is Anatoly’s report that, after receiving a $5 billion bailout from Russia last year, Iceland has offered its Keflavik airbase to ECA Program Ltd, a private military company that plans to station up to 30 Su-27 fighter jets there. ECA plan to buy the jets from Belarus (price not known, but it would be the largest purchase of military jets by a private company to date) and to use them for mock-dogfights that will help to train air-forces around the world.

Anatoly speculates that they could be a front for either the Russian or Chinese secret services, or potentially even a US “black-operations” programme. Having done a bit of research on PMCs in the past, I wouldn’t be surprised if the less prosaic truth is that it simply a company with an innovative, albiet very expensive and politically sensitive, idea to make money.

Having read the initial posts over at Arctic Progress I know I’ll be subscribing. I encourage you to check it out too.

New Blog: Arctic Progress is a post from: Siberian Light

The deal to extend Russia’s lease on the naval base in Sevastapol was ratified by Ukraine’s Rada today, but not without a fight… literally.

Opposition MPs, largely from Yulia Tymoshenko’s bloc, pelted the Speaker with eggs, forcing his aides to shelter him with a pair of (fortunately well placed) umbrellas. MPs also set of smoke bombs and brawled, with one MP reportedly taken to hospital with concussion.

All in all, it sounds like Ukraine’s lawmakers had a high old time, and they certainly gave everyone outside of Ukraine a good laugh. But, leaving aside the damage done to Ukraine’s image as boring farmers, did their lawmakers make the right decision in extending Russia’s lease for another 25 years?

Well, actually, I think that today’s been a pretty good day for Ukraine. By extending the lease until 2042 in exchange for a 30% reduction in gas bills, Ukraine’s pro-Russian President Viktor Yanukovych has negotiated a cracking deal.

In real terms, 30% translates to around $4 billion per year – and over $120 billion over the lifetime of the deal. And all for a naval base that (a) Ukraine probably doesn’t really mind Russia having and (b) if Russia left, Ukraine would have to pay to decommission.

The Financial Times disagree – they think that this deal is a bad one for Ukraine. Politically, the FT mainly seem worried that Russian operatives will destabilize the Crimea, but I can’t see why they wouldn’t be able to do that anyway from just across the Russo-Ukrainian border. And, additionally, deferring the Russian pull-out for another 25 years means that, in a decade’s time, the Ukrainian government won’t have to deal with tensions caused by the pullout. Much better to leave the Russian Navy in place, and take their cash.

(Alexander Golts, of the Yezhednevny Zhurnal, writing in the Moscow Times, by the way, is speculating that Ukraine might have pulled off a stunning coup – because they can take the 30% discount over the next 10 years, and then turn around and kick Russia out of their Crimean naval base anyway. I’m not sure that stealing the Russian bear’s honey, then turning around and kicking it in the nuts is a particularly sensible long term strategy, but it’s a fun idea!)

The FT is also worried that receiving the boost of a 30% discount will stop Ukraine from addressing its real problem – that it gobbles gas like there’s no tomorrow. Here I have more sympathy for their argument. Ukraine consumes three times as much gas as its similarly sized and more productive neighbour Poland. The real challenge for Ukraine’s government is going to be cutting down on gas usage, and lowering the cost isn’t going to help much there. But the problem is that high gas prices risk cutting gas usage by crippling production, leading to a vicious cycle of economic depression. The optimist in me wants to believe that at least a little bit of the savings will be invested in providing more efficient heat and industrial energy – we shall see…

What do you think? Has Ukraine negotiated its way into a good deal, or has the Russian Bear just wrapped Ukraine closer in its cozy embrace?

I'm singin' in Ukraine… is a post from: Siberian Light

A law backed by 341 lawmakers in the 450-seat State Duma lower house of parliament gave Gazprom, and oil pipeline monopoly Transneft, special exemption from strict limits on private businesses wielding arms.

The two state-controlled companies will for the first time be allowed to employ their own armed operatives instead of contracting an outside security firm. Their armed units will also have access to more weapons and more freedom to use them than private security companies.

The stated reason: to ensure the protection of gas pipelines and facilities from militants.

My cynical response: so much for the mighty Russian army.

Anyway, opponents of the bill are warning that today’s move risks opening a pandoras box, as they believe that where Gazprom leads, other Russian companies are sure to follow.

The only silver lining, I suppose, is that the bill still has to pass the Federation Council, and be approved by Putin before it becomes law.

Gazprom's private army is a post from: Siberian Light

Initially this struck me as rather odd – I’d always assumed that Russia was pretty much self-sufficient when it comes to uranium.

But, interestingly, Russia doesn’t mine anywhere near enough uranium to fuel all its nuclear reactors (military or civilian) or to cover the massive amount of uranium it has agreed to export to other countries.

Take a look at these numbers from 2000:

• 3,260 tonnes: Uranium mined in Russia
• 8,000 tonnes: Uranium used in Russian reactors
• 16,000 tonnes: Uranium exported abroad

Although production is on the increase, Russia used or exported seven times as much uranium as it was able to produce in 2000.

The only way that Russia can fuel its nuclear reactors, and meet its export obligations is to dip into its steadily diminishing stockpile of uranium, which currently stands at around a half a million tonnes. At the current rate of depletion, Russia’s uranium stockpile will be gone entirely in little more than 20 years.

Australia to export Uranium to Russia is a post from: Siberian Light

1. They are failing to diversify away from energy and develop a broad based economy rapidly enough. 
2. They need a rule of law that protects entrepreneurs and helps foster a middle class that will support a democratic market economy. 
3. They have a terrible situation in demography and public health, and have not invested in an adequate social safety net. 
4. Their current bullying attitudes in the energy area are destroying trust and undercutting their soft power in other countries.

I think he’s pretty much nailed it when it comes to identifying what Russia is doing wrong at the moment.  In particular, I like the way he has also identified particular structural strengths and weaknesses that Russia is either failing to take advantage of (energy wealth), or failing to take seriously enough (demography / health).

Having said that, though, I’m not sure that – even if the Russian government fails to find solutions to the problems that Nye identifies – Russia won’t still be a major power in 2020 (in the sense that it will have roughly the same impact on global and regional affairs that it enjoys today). 

2020 is only 13 years away and, unless there are some dramatic global shifts, energy is still going to be an important indicator of power in 2020.  I can’t see Russia losing its edge in that arena. (Nor, to be honest, do I see Russia losing its nuclear power, or its military edge over the majority of its neighbours).  

I can think of a number of (mainly Middle Eastern) oil-rich states that have kept going for years on the back of oil wealth, without addressing the underlying structural problems within their society and economy, and I see no reason why Russia can’t do the same.

The problem that Russia will face, of course, is the same one that every petro-state faces – keeping a population content is relatively easy while the money continues to flow in.  Keeping them happy when the money runs out is another matter altogether.  And, make no mistake – at some stage, the oil money will run out. 

Image courtesy of Waffler.  Thanks to Robert Amsterdam for first bringing Nye’s comments to my attention.  

Joseph Nye – what Russia is doing wrong is a post from: Siberian Light

All of Europe gets cut off from crude oil supplies, apparently.

His source is the New York Times, of all places, which has run a story with the headline:

Russian Crude Stops Flowing to Europe

Russian crude oil stopped flowing to Western Europe through a major pipeline across Belarus, officials here and in Europe said.

It isn’t until the fourth paragraph until the NY Times even mention the fact that only Germany, Poland and Ukraine are actually affected by the cutoff. And even then, it’s only in passing.

This isn’t really a criticism of Matthew – the NY Times story is incredibly misleading. But I found it fascinating to see how a little regional spat has turned into a public perception that big, bad Russia is turning off the lights all over Europe.

Update: Now Instapundit has picked up the meme.

How the Belarus oil story has grown is a post from: Siberian Light

• Belarus have slapped a tax on Russian oil transiting Belarus, and siphoning off Transneft’s oil to pay for it.  In response, Transneft have shut off the oil supply to huge chunks of Central Europe.
• Azerbaijan have stopped exporting oil to Russia, after failing to agree a price
• Georgia have signed a deal to buy gas from Turkey, instead of Russia (actually this was late last year, but its always good to get a headstart on New Year’s resolutions…).

Some of these moves are sensible, others aren’t. Either way, though, these moves don’t do Russia a lot of good – as ye reap, so shall ye sow.

(By the way – I’m posting this by phone while on the move, so no links at the moment. I’ll update with links tomorrow, but you can find details of each of these stories on the BBC News website).

Belarus’ decision to slap an oil tax of $45 per tonne on Russian oil transiting through Belarus (mostly en route to Poland and Germany) strikes me as an ill-considered reaction to the already signed deal to increase the rate Belarus pays for Russian gas to the global market rate. Effectively, it seems as though, Belarus have launched their counteroffensive after the war’s decisive battle has been lost. By taking this approach now, Belarus will bear the brunt of German and Polish irritation. And, what will they actually gain?

Azerbaijan’s decision is an odd one, which broke just as I was writing this article. There are conflicting reports as to what has actually happened, with some news agencies reporting that they have cut of oil supplies to Russia, others reporting that they have cut off supplies to Europe that were transiting through Russia. I wonder, though, if it will achieve all that much, other than to make Azerbaijan seem like yet another unreliable supplier of oil in Western European eyes. Things may become clearer by the morning – if so, I’ll post an update.

Georgia’s decision strikes me as much more sensible. Now that Russia is no longer offering massive subsidies on the price of gas, it isn’t an attractive choice of supplier. These days, countries perceive Russia as an unreliable supplier – one prone to using its gas supplies as a weapon. Given this, if a country can find another country willing to supply gas at the same price as Russia, they’d have to be crazy not to switch suppliers. (and in this case, I wouldn’t be at all surprised to discover that Turkey either undercut Russia’s prices, or offered some kind of sweetener to smooth the deal’ progress).

Russia is the biggest loser in this whole debacle. As I mentioned above, they way they’ve handled these price increases – linking them to political threat, and using them to bully countries into selling energy assets for a song – has created a perception among their customers – current and future – that they are an unreliable, unprincipled and bullying business partner.

Russia may well earn more per cubic meter of gas sold than it did last year, but if it is not careful, it may well find that is has less and less customers for its gas, driving down overall income. At the same time it will have lost friends around the globe, making its geopolitical aims that much harder to achieve.

Update: Tim comments below that “Russia is playing an exceptionally strong hand very very badly”.

This mornings newspapers show just how badly Russia has handled things, and how poor its image is in European capitals.  Splashed all over the front page of the (London) Times in big bold type is the headline “Russia turns off Europe’s oil supply“.

(While technically, the headline is correct – Russian firm Transneft turned off the oil – I’m more inclined to pin the blame on Belarus.  They imposed a ludicrously large tax on Russian oil transported through Belarussian pipelines and, when Transneft didn’t pay, began to siphon off oil in lieu of payment.  True, this was done in response to the way Russia imposed huge gas price increases on Belarus but, as I’ve explained above, I don’t think this was a particularly sensible reaction by Belarus).

Oil wars is a post from: Siberian Light

Under the terms of the deal, Belarus will pay $100 per thousand cubic metres this year, but the price will steadily rise until it reaches around $250 per thousand cubic metres in 2011.  This will bring prices into line with the current market rate.

Belarus also – reluctantly – agreed to sell half of their gas distribution network to Gazprom for $2.5 billion.  Not such a great deal when you consider they originally valued the network at $16 billion.  The decision to sell a 50% stake was odd too – usually stakes of 49% or 51% are sold, to give someone overall control.  I’m at a loss to explain this aspect of the deal. 

As you can imagine – the Belarussian Prime Minister wasn’t happy:

“As you know, 60 percent of the Belarusian people are victims of Chernobyl [nuclear disaster]. So, we have to go to these victims of Chornobyl, we have to go to the elderly and explain to them that the price for gas has been raised twice more than we expected.”

So, don’t expect relations between Russia and Belarus to be quite as cosy as they have been over the past few years. 

But there is one small upside - Russia’s main gas ‘weapon’ in recent years has been the threat of ending gas subsidies to former Soviet states.  Once Belarus begins paying market rates, the Russian government will lose one of its main foreign policy levers. 

Belarus reaches last minute deal with Russia over gas price is a post from: Siberian Light

Although there has been no official announement yet on the outcome of the talks, Reuters are reporting that the talks went so badly that Lukashenko decided to skip the evening’s planned entertainment: 

He returned to Minsk, skipping a Kremlin dinner and a planned trip to an ice-hockey match.

Presumably, he didn’t get to do any Christmas shopping, either.  

Anyway, how did this dispute come about?  Russia are insisting that Belarus pays for its gas supplies at the full market rate, which would be more than double, and possibly even four times as much as Belarus currently pays.  Russia, in its generosity has agreed to waive the increase, but only if Belarus agrees to sell its gas distribution network, Beltransgas, for $4 billion. 

The problem is, Belarus doesn’t want to sell one of its prize assets, which it values at closer to $16 billion.

Where this leaves the prospect of political union between Russia and Belarus, I don’t know. 

It should, though, act as a warning to those authoritarian leaders who want to cosy up to Russia.  Freindship means very little to the Kremlin when it comes to selling gas these days.

Belarus-Russia relations sour over gas deal is a post from: Siberian Light

In a rather timely decision, the BBC have just decided to publish a feature article about the Russian cosmodrome at Plesetsk. Now, Plesetsk isn’t a closed city, but Mirny, the town next door is. The BBC reporter managed to get a precious invitation to visit Mirny, and this is what he saw:

Home to about 80,000 military staff and their families, at first glance, it seems like any other town, save the austere apartment blocks and lack of road signs.

We are taken to the space museum in the town square, then the kindergarten, where children dressed in traditional clothes sing Russian songs.

Despite the presence of occasional teams of foreign engineers, most of the town remains off limits to visitors. They can walk around only a small central section and must not stray outside the designated area.

The town was never on the map and its inhabitants can still only be officially reached under a military field post number.

I’ve just been to see if I could find Mirny using both GoogleEarth (the satellite imaging programme) and Expedia maps. I tried every spelling of the name I could think of without any luck (although I did discover there is a village with the same name in Southern Russia). I think I’ll have to investigate further, to see whether any of the closed cities that the Russian government has admitted to (and Mirny isn’t one of them) are on any maps.

So far, the only other account I’ve been able to find about a visit to a closed city, is Tajikblog’s visit to Taboshar, the city where the uranium for the first Soviet nuclear bombs was mined. Taboshar – in Tajikistan, by the way, and not Russia – is no longer a closed city. But it certainly doesn’t seem a very welcoming place…

Either way, we just slowly begin to explore the town. It’s really quite a nice town with birch trees and huge stone houses lining the streets, aside from the fact that most of the buildings are empty and starting to fall apart. Soon enough, though, another set of suspicious men appears (with their wives and children in tow, not exactly an intimidating sight) and the confrontation begins.

The mayor (who prior to this had a good reputation among internationals) was at the center of the posse. I wanted to meet him anyway hoping for a tour, so this was as fine a time as any to say hello. I must have caught him at a bad time, though, as his mood was sour.

After the initial “hi I’m Peter XXX, photographer from New York” schtick, it was time for the inquisition.
Why are you here? Who guided you here? What do you know about this town? Etc. etc.
Nargiza steadfastly translates the questions and my answers, but suddenly his suspicion and temper rise.

One thing that set him off, I think was my knowledge of the town’s having a high-tech science lab. Stephanie told me about it as the mayor’s sad attempt to attract people to his town, to create a center for technology. Maybe something else is going on, because he certainly didn’t want to speak about it.

I’m going to keep searching for stories about Russian closed cities (and others around the Former Soviet Union if I can find them). If you have any links, or stories of your own, please feel free to share them here.

Closed cities from the inside is a post from: Siberian Light