Category: Russia

Obama Starts Dialog With Medvedev on BMD

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Barack Obama dispatched a letter to Dmitri Medvedev suggesting that the installations in the Czech Republic and Poland are not a done deal, and that if they can come to a meeting of the minds on Iran, this could be called off.

The installations have always been wrong headed, improperly located, and provocative,* so this is a bit of good news.

*I’ve always said that the provocative bit was a feature, not a bug. A bellicose and militaristic Russia benefits the ‘Phants and their defense contractor friends.

Economics Update

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I’m not going to be writing about Geithner’s bank bailout plan here, it needs it’s own post, but I have some graph pr0n, a little update from last night’s Pelosi scary employment graph courtesy of Justin Fox (top) and William Polley.

The first goes back 6 recessions, and the 2nd covers all of the recessions since WWII, which makes a bit busy, but they are at least as scary as last night’s graph.

On to the update:

It appears that the Asian economies are melt down down, with Japan’s economy is deteriorating in a way that has not been seen in 50 years, China’s exports falling by double digits, the Taiwan dollar and Malaysian Ringgit falling, and the IMF predicting a 4% contraction in the South Korean economy in 2009.

Meanwhile, there is a report that Russia is attempting to restructure its debts, which is a polite way of saying that they are threatening to default.

Meanwhile, Geithner’s plan, and the Senate’s approval of a stimulus, does appear to be having an effect on the markets, with oil falling, which indicates that the oil traders do not expect to see a rapid economic turn around, and the dollar rising, on the same information.

In this case it appears to be cross purposes, but I think that the reason that the dollar is up is because people realize that the bailout makes US investments more attractive, albeit at taxpayer expense, but that is another post.

A Challenge to NATO?

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Russia, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan have agreed to form a joint quick reaction force with a, “joint command and be based permanently on Russian territory.”

It does not appear to be a particularly large force, it looks like perhaps a brigade, but it does imply an upgrade to the Collective Security Treaty Organization, which appears to be an attempt at a counterweight to NATO.

What Are They Smoking?

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Russia and India now have an in-service date for their joint next generation fighter program, the PAK-FA, 2017.

This simply is not going to happen that soon, particularly when India is still unsatisfied with the level of technology transfer, and they haven’t yet agreed on the number of crew (Russia wants a single seater, India a 2-seater).

They may have a demonstrator, at a maturity level of the MiG MFI, or the BAE EAP in the next 5 years, but the former never saw production, and the successor to the latter the Typhoon, did enter service until more than a decade after it rolled out.

If this ever enters service, I’d my guess is that it would be closer to 2025 than 2017.

And the P-80 was 180 days from proposal to first flight……

Russian Defense Recapitalization Threatened by Financial Meltdown

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Vladimir Putin committed to major new spending on the Russian military. He has committed to 1 trillion rubles ($30.5 b) on new procurement, upgrades, and R&D.(paid subscription required)

Notwithstanding this spending, the Russian defense industry is still not in great shape, as commercial credit has largely dried up:

Putin met with industry leaders recently at Tactical Missile Corp. headquarters in Korolev, a Moscow suburb. The package unveiled by Putin includes the injection of 35 billion rubles in additional capitalization and the allocation of 100 billion rubles as a state guarantee on bank loans. Along with the loan guarantee, there is a further 15 billion rubles to compensate for high interest rates.

(emphasis mine)

Additionally, there is likely to be further rationalization (mergers and tighter integration) among manufacturers, as is evidenced by the continuing submergence of MiG in United Aircraft Corp. (UAC) with Sukhoi firmly in the lead.

In terms of likely purchases, the Russian air force is looking for upgraded Su-27s (SU-35 shown) in the near term, and the Indo-Russian PAK-FA in the long term.

New Helos Finally Enter Russian Service

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With development beginning in the 1970s, the Mi-28N and the Kamov Ka-52 attackers, and the more recent Ansat-U training helicopter, are finally entering Russian service in meaningful numbers.

The Mi-28 “Havoc” was intended to replace the Mi-24 “Hind” in the 1980s, and the Ka-52, a derivative of the single seat Ka-50 attack helo, which was the winner, and then the loser, against the Mi-28 over the past few decades looks to serve as a scout attack helo.

It looks like both will eventually, the radar is still in development, be equipped with millimeter radar guided missiles, much link the longbow.

Gas Deal Reported

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I hope that this one is not a false alarm

Under the reported deal, Ukraine will pay 20 percent less than the European price for this year. This means a substantial increase for Ukraine in the first quarter but the price could fall significantly later in the year as gas prices are expected to drop.

It does seem to be a fair deal to both sides….Which Is why I’m wondering when it will fall apart.

Also, Slovakia has put off restarting is Soviet era nuke plant.

They had declared an emergency because of the gas crisis, and were talking about restarting it.

There is Only One Side Here Acting Like a Thief

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And it is not the Russians.

So we have an “agreement” 2 days ago, and Russia puts a little gas into the system, in order to verify that the Ukrainians are not tapping the gas going to Europe, and they get the following:

Ukraine’s state energy firm said it could not ship the gas without cutting off several of its own regions.

So, why do I believe that this points a finger at Naftogaz and the Ukrainians?

Because rerouting some of the gas in one direction, and some in another is how these networks are supposed to function.

I would also add that the fact that the Ukrainians are refusing to route the gas to Europe and refusing to allow monitors into dispatching centers and control rooms as agreed to by both sides.

This is not how an honest broker behaves.

Meanwhile, the governments on the EU side of the pipeline are freaking out, and Medvedev has called for an emergency summit on this in 3 days in Moscow.

OK, so I Finally Have a Handle on What is Going on in the Ukraine Gas Fiasco

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First, the prior contract on natural gas prices, which covered both gas and transit fees across Ukraine expired.

So Gazprom its Ukranian counterpart Naftogaz were negotiating, and then, because there was no deal on prices, Russia reduced shipments to the Ukraine but shipped more to the EU, on the far side of the pipeline, along with routing as much gas as possible via Belarus.

Russia then shut down the feed Ukrainian pipeline, because they said that the Ukrainians were stealing the gas, which has led to gas disruptions across Europe.

So they are now in negotiations, and there are a number of sticking points:

The first is that Ukraine wants to cut the contracted agent for the gas sales, RosUkrEnergo, because they believe it to be corrupt, which is probably true, but it also gives them the ability to monitor just how much gas enters the Ukraine from Russia.

The next big issues are over price. Ukraine was paying $179.50/tcm (thousand cubic meters) with a transit fee of $1.70/tcm/100 km, and has offered $201/tcm with a transit fee of $2.05/tcm/100km.

When you consider that a lot more gas goes through Ukraine than is used there, it sounds like a wash in terms of cost to the Ukranians.

Gazprom wants to keep the transit fee the same, and charge $480/tcm, which is much closer to the market rate, it’s selling gas to the EU at around $420/tcm.

So the numbers offered by Gazprom seem to be in line with the market, plus about 20% because you always start negotiations that way as the seller.

In any case, the EU has gotten agreement from both sides to act as an independent monitor of gas flows, because they want their gas:

After phone conversations with Prime Minister Vladimir Putin of Russia and his Ukrainian counterpart, Yulia Tymoshenko, on Wednesday, the European Commission president, José Manuel Barroso, said both leaders had agreed in principle to allow monitors to verify gas movements. But he also warned both countries — and particularly Ukraine — that failure to help restore supplies could have consequences for their relationships with the European Union.

(emphasis mine)

It turns out that the best guess here is that reductions of gas leaving the Ukraine side were far greater than the reductions that the Russians reported on their side, and the implication is that the Russians are actually telling the truth when they are saying that the Ukrainians are stealing gas from the pipeline.

Also Wednesday, Chancellor Angela Merkel of Germany spoke with Putin by phone, and in Moscow, Putin met with a former German chancellor, Gerhard Schröder, who now serves as chairman of the board of a Gazprom-controlled company planning to build a pipeline from Russia to Germany under the Baltic Sea, cutting out Ukraine.

(emphasis mine)

It appears that the Germans certainly think that the Ukraine is taking more than it buys from Russia, and I’m inclined to agree.

Much of recent Ukrainian economic expansion, before the world wide recession hit, was driven by below market gas supplied with the implied quid pro quo that Ukraine would be an ally of Russia, and having to pay fair market value for the gas is a real hardship, particularly now that FSU countries’ economies seem to be in free fall.

Like the chicken said, “You knew the job was dangerous when you took it.”

That being said, we are not seeing a punitive price, and best evidence is that the Ukrainians are stealing the gas.

Russia Increasing Test Launches of New SLBM

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Because of the most recent test failure of the Bulava SLBM, Russia will be increasing the number of test launches for the missile in 2009.

They had indented to do 3-4 test launches this year, but now they are committing to at least 5 launches.

They have been 5 for 10 on test launches, which is actually better than SLBM tests during the Soviet days, and this indicates a move back to more extensive testing, which I approve.

In reviewing US missile tests, it appears that there is a panic whenever their is a failure, because the test programs here are now based on the idea that everything will be caught in analysis, and that tests should progress without failures.

This does not work, and results in delays and cost escalation.

So My Prediction on the Ukraine and the Crimea…..

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So, I make a prediction that Russia will use the Ukrainian gas debt to get the Crimea, and it looks like I’ve been proved wrong in less than a week…..Narf!

It appears that Ukraine has agreed to pay their old gas bill, and a new deal for 2009 is ready….Only both sides are disputing whether Ukraine has actually paid the debt:

Russia has said it will turn off the taps to Ukraine if it
does not receive $2 billion in arrears and conclude a new supply
deal, a threat that has alarmed European states which receive
their Russian gas via pipelines passing through Ukraine.

OK, maybe I haven’t been proved wrong yet…..Narf!

Gazprom is threatening to cut off gas to the Ukraine, it appears that the dispute is now their late fees, and not the actual gas themselves.

I’m wondering when Russia will construct a pipeline through Belarus.

Will Russia Buy the Crimea from Ukraine?

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This is all pure speculation on my part, and my record on predictions is only marginally better than that of the Detroit Lions with regards to football, but I think that there is a distinct possibility that this might happen.

We have a number of developments going on simultaneously, with Medvedev and Gazprom playing hardball on a $2.1 billion debt and warning of a cutoff of gas if there is no resolution.

Then we have Edward Hugh’s amusingly named essay, “As The Politicians Battle It Out Ukraine’s Economy Tunnels South In Search Of Australia,” (H/T, Paul Krugman Blog for the link) which provides us with the included chart pr0n.*

You see industrial production falling by nearly 25%, and inflation and the central banks both topping 20%.

Simply put, this is an economic meltdown that starts looking like something out of Mad Max.

When you juxtapose this with reports that Russian PM Vladimir Putin Ukrainian PM Yulia Timoshenko are holding talks to resolve the issue, it appears to me that the Ukrainians have very little leverage.

About the only thing that I think that the Ukrainians can offer Russia is the Crimea, which is already primarily a Russian speaking province, and had been a part Russia until Khrushchev gifted it to Ukraine in 1954.

I’m not sure whether a “sale” of the Crimea to Russia would involve an actual negotiated transfer of territory. We could see extensions regarding treaty rights for the Russian naval base at Sevastopol, increased autonomy for the region, and perhaps agreements to protect the “heritage” of the province, which would mean that the Russian speaking nature of the the Crimea would be preserved.

In the long run though, a full separation of the Crimea from the Ukraine might be beneficial for both sides. For the Russians, the benefits are obvious, the protection of ethnic Russians and national pride, and for the Ukrainians, it creates a less ethnically diverse state, which means that you will likely have real issues of governance, as opposed to the current paralysis which is driven by the Russian minority being largely disengaged.

*I tend to disagree with Hugh’s thesis that demographic issues are at the root of much of this problem. While the Ukrainian population has fallen by a remarkable 11% since 1992, and with the death rate exceeding the birth rate by over 50%, I do not believe that a growing population is necessary for economic well-being.†
†Case in point what happened in Europe following the Black Death, which had a with a mortality rate of around 50%. There was a marked increase in social mobility and wages for the average worker, largely at the expense of the landholders and other members of the economic elite, despite largely ineffective anti-labor laws that were instituted. The lesson here is that if population falls, the total GDP may fall, it certainly did during the black death, but per capita GDP went up, and if you can pry this out of the hands of the economic elites, life can be better for everyone.

Russia Strategic Missile Forces Update

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We are now hearing rumblings that Russia may be putting a nuclear missile installation in Belarus, specifically, the mobile strategic missile the Topol, though it’s unclear from the report as to whether it is the RT-2PM Topol (SS-25 Sickle), or the more advanced RT-2UTTH (SS-27 Sickle B).

In either case, I’m not sure whether this intended to make the strategic missiles targeting the US less vulnerable to the interceptors, or to imply that these could be launched on a depressed trajectory against the European BMD sites, though I would lean toward the latter.

Belarus borders Poland, and so I would think that interception of missiles launched toward the US would be relatively straightforward, though the kinematics of the missiles in question and the intercept solutions are above my pay grade.

Also, we have reports that the Russian military is looking at commissioning 70 new nuclear missiles over the next 3 years, though reports of a failure in the most recent test of the Bulava SLBM (see also here) might throw a monkey wrench into what seems to be a very aggressive timetable.

And the Sub Lease Deal Soap Opera Continues

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Well, it looks like the on again off again deal between Russia and India to lease nuclear attack submarines is on again.

The Nerpa, which was originally the subject of the deal until an accidental discharge of the fire fighting system killed 20 people, is no longer believed to be a part of the deal, though a sister ship (Project 971 “Akula” class boats), or perhaps more than one sister ship, might be a part of the deal.