Russian Profiteering?

by Joshua Foust on 9/3/2006 · 7 comments

Fresh off Airbus’ tumbling stock price, a major state-owned Russian bank buys a big stake in the aircraft consortium. While the Russians have been fairly open about their desire for a stake in EADS (possibly related to domestic companies like Aeroflot and Tupelov losing popularity and income), I found this bit particularly interesting:

The idea of Russian involvement in the consortium was already raised in December, 2004, talks between Russian President Vladimir Putin and then German Chancellor Gerhard Schröder.

Why does this seem familiar?


Oh yeah, the Vyborg-Griefswald pipe! In case you missed it, Gerhard Schroeder, barely three weeks after retiring as Chancellor of Germany, took a multi-million dollar job at a Gazprom subsidiary charged with building an oil pipeline directly from Russia to Germany along the Baltic Sea floor, cutting out the cheaper option of sending the pipe through Eastern European countries like Poland. (Gazprom is the state-owned monopoly that gained recent notoreity for jacking energy prices to Ukraine and Georgia in retaliation for their newfound pro-American sentiment). Though blatantly hostile to the pro-American EU-10 (who joined the Union in 2004), I was much more interested in the lack of coverage of Schroeder’s move—since it came so soon after his retirement from office, he had to have been in negotiations while still serving, surely a massive conflict of interest. The American equivalent would be George W. Bush getting a multi-million dollar job at Halliburton days after leaving office in 2009. Imagine the uproar!

But this isn’t about Schroeder or Bush, it is about Russia. They are playing an absolutely brilliant game, inserting themselves into just the right places to regain a lot of the economic and political clout they once enjoyed as the USSR. Russia’s power grab has been brazen enough to worry its pro-American neighbors, but curiously not U.S. policymakers, at least officially.

But make no mistake: buying a stake in EADS is just another move in the Eurasian chessboard. Russia marches on. While Europe seems perfectly fine with a resurgent, autocratic Russia, this growing trend deeply worries Russia’s smaller neighbors and former vassals. What is the American position? We don’t know.

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This post was written by...

– author of 1848 posts on 17_PersonNotFound.

Joshua Foust is a Fellow at the American Security Project and the author of Afghanistan Journal: Selections from His research focuses primarily on Central and South Asia. Joshua is a correspondent for The Atlantic and a columnist for PBS Need to Know. Joshua appears regularly on the BBC World News, Aljazeera, and international public radio. Joshua's writing has appeared in the Columbia Journalism Review, Foreign Policy’s AfPak Channel, the New York Times, Reuters, and the Christian Science Monitor. Follow him on twitter: @joshuafoust

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Laurence September 3, 2006 at 6:42 pm

Josh, congrats on another interesting post. Another question, doesn’t EADS have some American defense contracts? How might a Russian investment affect that business? Personally, I with the US would negotiate a new deal with Russia as a partner, rather than play games vis-a-vis Europe, but my guess is that the American policy right now is–NO deal with Russia… This is one consequence, perhaps. When the US does finally make a deal, Russia will probably be stronger and the US still weaker. A policy would be welcome, but strategic types like Richard Pipes and Madeleine Albright are gone from the scene…

Joshua Foust September 3, 2006 at 6:44 pm

I agree that a policy of engagement (perhaps preemption of a sort) would be better than our current policy of nothing, but I’m not sure how it would get through the current administration. I’m not at all sure how you preempt an oil-rich country that decided to flex its muscles, just as I’m not sure how you can convince a twitchy American public that the world, and American interests in that world, is more than just Iraq.

Joshua Foust September 3, 2006 at 6:48 pm

To answer your first question, EADS does not yet have any defense contracts in the US. Last I heard (which was sometime last year) the consortium was angling to win a new bid for building refueling tankers and cargo craft. They were trying to team up with Grumman and Raytheon, if my memory serves me. Anyway, they still haven’t yet racked enough of a presence in the defense industry stateside to raise any eyebrows should Rusisan ownership become a larger issue—they could be cut out with little to no political cost, despite all the new American plants they’re built and planned.

Alex Parkhomenko September 4, 2006 at 12:08 am

This is the big political and economical game: enriched by oil fields russians try to make investments but not spendings. Kinda wise strategy for a former intelligence officer, don’t you think so? And US has hard options: to fight russian expansion trying to blame Puting as “no democracy ruler” or to unpack their own oil fields and ruine oil prices. But there is China endless demand for oil…

Things change and US have to do something radical to cope with this new competitor. There was almost successful operation to destroy russian influence by destroying SU but there is no SU already and we see, what a pity, strong and aggressive Russia which has good backing from nature-gifted God-provided oil resources.

What the will probably do is another round of military race which destroyed SU economicaly… Or another war maybe…

And finally maybe something change and they change their attitude about Russia and we could be friends and parntners…
What challenges me most in this fantastic situation: what russian neocons would do if there will be no enemy? 🙂

Old world, old politics…

Brian II September 4, 2006 at 4:55 am

Below is an excerpt from Lou Dobbs’ ‘MoneyLine’ from CNN in April 2006. It describes how Chinese President Hu’s visit to the United States focused on ‘Checkbook diplomacy’: economic warfare.

It seems as though practically analogous arguments could be made regarding Russia – now that the coffers are full.

It seems to be a similar strategy that Russia is taking in Central Asia, since the United States government felt that Uzbekistan is too far away to become a strategic trade partner. So who could blame them for turning to Russia or china?

Certainly Uzbekistan’s treatment of Newmont is politically motivated – and there is no excuse for that. However, the Uzbeks also are not completely stupid. Instituional investors (including governments) are desperately looking for strategic partners now that commodity prices are high. Therefore, the bargaining position on the basis o f ‘moral grounds’ are limited.

I’d venture a guess that until the US starts boycotting China en-masse due to its own pooor human rights record, Uzbekistan won’t be turning an eye towards DC.

And that doesn’t appear to be any time soon.

It’s economic warfare, and the US only strategic response so far has been to block Dubai Ports and China (Unocal), when an open, collaborative policy would appear to have a much better long-term (ie, beyond the next election cycle) impact on both the region and the US … seems such a world power could do a bit better than knee-jerking?

April 2006
NEW YORK CITY (CNN) — Chinese President Hu Jintao meets with President Bush in the nation’s capital Thursday after a cross-country trip for Hu that follows his state dinner with billionaire Bill Gates.

The Chinese president’s first two days in this country included stops at Boeing and Microsoft, raising questions about the purpose of President Hu’s visit. The fact that Hu’s summit at the White House comes only after touring two of our most profitable businesses means “checkbook diplomacy” is no longer purely an American strategy.

China’s economy has grown by an average of about 10 percent a year over the past two decades. This year, China moved ahead of Britain and France to become the world’s fourth-largest economy. It’s also changing the global supply chain, becoming the world’s leading buyer of basic commodities, whether grain, meat, coal and steel, and is second to only the United States in consumption of oil. China is buying up American companies and other multinational corporations with almost $900 billion of hard currency reserves.

China has now arrived, and we no longer refer to our series on China’s rapid economic and military build-up as “Red Star Rising.” The title of that reporting is now “Red Storm.”

But the Red Storm cannot be blamed for its continued manipulation of its currency, for its record $202 billion trade surplus with the United States or for buying up American businesses and hard assets around the globe while restricting access to its market and economy.

The fault lies entirely with the U.S. government, our lack of strategy and our failed policies. This administration and U.S. multinational corporations have lost sight of the national interest. This administration and the Republican-led Congress have permitted the dismantling of America’s manufacturing base and created a dependency on China for our clothing, computers, consumer electronics and a host of other products that is greater than our dependency on foreign oil.

Make no mistake: Our leaders are the fools, and China’s leaders are not to be blamed for taking advantage of this administration’s commitment to faith-based economic theories and so-called free trade that permits the Chinese access to the world’s richest consumer market while China denies our businesses access to its emerging market.

We can only blame ourselves and our business leaders for offshoring production to China. We can only blame ourselves and our business leaders for permitting the transfer of our knowledge base in technology to China. And we can only blame ourselves and our business leaders for shipping middle-class jobs to China in search of lower labor costs.

When you watch President Hu and President Bush shake hands at the White House, it would be wise for all of us to remember what that handshake costs America. And remember, there’s a reason President Hu met with business leaders in Seattle first. He obviously knows who’s really in charge of this country.

Craig Murray September 5, 2006 at 1:04 am

Gazprom was Russia’s tool for evicting the US from Uzbekistan. They got the big gas contract, negotiated between Alisher Usmanov (who among many other interests is a director of Gazprom responsible for “External affairs”) and Gulnara Karimova. In exchange for the very large sweetener to Gulnara (88 million dollars according to my source, who definitely has access and I believe), Putin insisted on the end of US military influence in Uzbekistan. This is the essential background to Uzbekistan’s diplomatic renversement.

The role of Schroeder in this is fascinating. In the coalition negotiations, the outgoing Schroeder insisted on nominating the German Foreign Minister – very useful from a Gazprom viewpoint (look at that pipeline map).

Germany was not evicted from Termez when the US was evicted from K2 and was the only EU member of NATO not banned from overflight. Germany opposed the EU sanctions against Uzbekistan and insisted they did not apply to the Karimov family. They then accepted Almatov for medical treatment desite the sanctions, where he was treated in Schroeder’s home town by a doctor who is a personal friend of Schroeder. That I know for certain. I have been told that Gazprom paid the bill for his treatment, but I can’t prove that bit and the source for this (not the same source as above), though well placed, is not someone I really know.
Germany is now leading the EU charge for re-engagement with Uzbekistan and the lifting of sanctions.

I find it ironic that they are again trotting out total fantasy arguments that the human rights situation in Uzbkistan has improved post-Andijan. It has plainly got worse.

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