Oil Jumps Most in 16 Months on U.S. Plan to Increase Reserve
By Mark Shenk
Jan. 23 (Bloomberg) -- Crude oil surged the most since hurricanes devastated the Gulf of Mexico coast in September 2005 after the U.S. said it will double the size of the nation's Strategic Petroleum Reserve.
The reserve will increase from its current capacity of 727 million barrels of oil to 1.5 billion barrels over the next two decades, Energy Secretary Samuel Bodman said today. Bodman said the U.S. will start buying 100,000 barrels of oil a day this spring to expand the stockpile. Prices rose earlier because cooler U.S. weather will increase fuel use.
``Doubling the size of the SPR would add significant upward pressure on oil prices,'' said Jason Schenker, an economist at Wachovia Corp. in Charlotte, North Carolina. ``It would remove a significant amount of supply from the market. Refiners will have to spend more to get the available barrels.''
Crude oil for March delivery rose $2.46, or 4.7 percent, to $55.04 a barrel, on the New York Mercantile Exchange, the highest close since Jan. 9. It was the biggest one-day gain since Sept. 19, 2005. Prices are 19 percent lower than a year ago.
The U.S. reserve and similar stockpiles in Europe and Asia are held to make up for disruptions of global oil supplies. The U.S. tapped reserves in 1991 after Iraq invaded Kuwait and in 2005 after hurricanes disrupted pipelines, refineries and Gulf of Mexico production.
``We will have to fill the reserve at the rate of 100,000 barrels a day for the next 20 years,'' said Robert Ebel, chairman of the energy program at the Center for Strategic and International Studies in Washington. ``Taking 100,000 barrels a day will take some oil off the market, but keep in mind the world produces about 85 million barrels day.''
97 Days of Imports
The expanded reserve, which is stored in salt caverns along the U.S. Gulf Coast, would hold oil equivalent to about 97 days of U.S. oil imports.
The eastern two-thirds of the nation will experience below- normal temperatures from Jan. 29 to Feb. 6, the National Weather Service said today. Heating demand in the Northeast, the region responsible for 80 percent of U.S. heating-oil consumption, will be 11 percent above normal this week, Belton, Missouri-based forecaster Weather Derivatives said.
``Forecasts show that the weather is turning colder, especially along the East Coast, which is really rocking natural gas and heating oil,'' said Aaron Kildow, a broker at Prudential Financial Derivatives LLC in New York. ``Crude oil is following them.''
Heating oil for February delivery rose 6.79 cents, or 4.5 percent, to $1.5763 a gallon in New York. Natural gas for February delivery climbed 27.8 cents, or 3.8 percent, to $7.597 per million British thermal units in New York, the highest since Dec. 13.
Weakened El Nino
Signs that an El Nino weather system may be weakening led meteorologists at the U.S. Climate Prediction Center to revise their outlook for temperatures in the eastern U.S. during February. The agency on Jan. 18 forecast a greater chance for below-normal temperatures across the eastern third of the country during the rest of January and in February.
El Nino refers to the warming of the Pacific Ocean surface off the western coast of South America. The phenomenon affects the jet stream, alters storm tracks and creates unusual weather patterns. A moderate to strong El Nino typically brings mild winters to the U.S.
``I think we're seeing an instinctual response to the colder weather,'' said Rick Mueller, an analyst with Energy Security Analysis Inc. in Tilburg, the Netherlands. ``The move is probably overdone because the winter has been so warm already and it's just too late to make much of a dent in distillate supplies.''
U.S. inventories of distillate fuel, a category that includes heating oil and diesel, in the week ended Jan. 12 were 7.2 percent above the five-year average for the period, the Energy Department said last week. Crude oil, gasoline and natural gas stockpiles were also above the five-year average, according to the department.
Nigerian Kidnappings
A U.S. and a British citizen were kidnapped in the Nigerian city of Port Harcourt today and the Philippine government said 24 of its nationals were abducted three days ago. More than 200 people, about half of them expatriates, have been kidnapped in Nigeria's oil-producing region in the past year.
Militant groups and criminals kidnapping for ransom have been behind earlier abductions. Nigeria is the fifth-biggest U.S. oil supplier.
The Movement for the Emancipation of the Niger Delta, or MEND, has attacked oil installations in the Niger Delta in a campaign to cripple the country's oil industry. Its raids forced Royal Dutch Shell Plc's unit in Nigeria to halt output of about 500,000 barrels a day, almost a quarter of the country's current production.
``The market has already priced in that Nigeria will remain somewhat chaotic at least through the presidential election in April,'' Mueller said.
Nigeria's presidential election is scheduled for April 21.
Brent crude oil for March settlement rose $2.40, or 4.6 percent, to close at $55.10 a barrel on the London-based ICE Futures exchange.

Caspian pipeline to bring oil, relief for WestBy Nicholas BirchTHE WASHINGTON TIMESPublished July 13, 2006


ISTANBUL -- "The new Silk Road," "a vital East-West energy corridor," "Europe's second Rotterdam." There will be no shortage of plaudits when dignitaries from 50 countries meet on Turkey's southern coast today to celebrate the official opening of the Baku (Azerbaijan)-Tbilisi (Georgia)-Ceyhan (Turkey) pipeline. More than a decade and $4 billion in the making, the 1,100-mile Baku-Tbilisi-Ceyhan (BTC) pipeline will soon be pumping 1 million barrels per day of Caspian oil westward. With Saudi Arabia's daily exports reaching 9 million barrels per day, that may not seem much. But with prices soaring and energy supplies increasingly concentrated in the Persian Gulf and Russia, analysts say it brings the West vital diversity. Eight more gas and oil pipelines are on the drawing board, and Turks see the pipeline as another selling point in Ankara's campaign to shoehorn Turkey into a reluctant European Union. Western Europe is intensely conscious of its dependence on Russia for gas since Gazprom, Russia's state-controlled gas monopoly, cut supplies to Ukraine and other countries last winter, says Yalim Eralp, a retired Turkish diplomat. "By offering an alternative energy corridor, Turkey can both help Europe and increase its own attractiveness in European capitals." But as heads of state gird themselves for what may be a stormy, energy-obsessed Group of Eight summit in Russia this weekend, analysts fear the BTC pipeline's strategic value may be less than its proponents claim. Russian pipelines will continue to carry the majority of Caspian oil to the West. And more importantly, Turkey itself has turned to Moscow for more and more of its energy needs and now purchases 65 percent of its natural gas from its northern neighbor. The BTC pipeline was built with staunch U.S. support to "create an East-West hub independent of Russia, tying Central Asia to the West," said Bulent Aliriza, a Turkey specialist at the Washington-based Center for Strategic and International Studies. "Now that it has been built, the irony is that the hub country is more dependent on Russia than before." Ankara-based energy specialist Necdet Pamir said that dependence has left Turkey -- a vital NATO ally against the former Soviet Union -- vulnerable to political pressure from Moscow. Russia has already tried to persuade Turkey to waive standard procedures on bidding for energy contracts it is interested in, he said. More significantly, Moscow is eager to see Turkey carry Russian gas to Central Europe through Nabucco, a 1,860-mile pipeline project the EU hopes will run from Azerbaijan to Austria by 2011. Given that the purpose of Nabucco is to provide Europe with a Caspian alternative to Russian gas, some analysts see Moscow's suggestion as tantamount to sabotage. Zeyno Baran, a Caspian and Turkish specialist at the Hudson Institute in Washington, insists Turkey is not deliberately favoring Russia over the West, but worries that Ankara's juggling act could eventually lead to political problems with Washington.

China, India hit $20 bn trade goal ahead of target
IANS Saturday 27th January, 2007
Beijing, Jan 27 (Xinhua) Trade between China and India hit $24.9 billion last year, exceeding the $20 billion goal two years ahead of target, China's ministry of commerce announced.The two Asian giants, both among the world's fastest growing economies, had signed an agreement in 2005, pledging to bring the bilateral trade volume to $20 billion by 2008.According to the ministry, India was China's 10th largest trade partner in 2006, while Indian statistics showed China was India's second largest trade partner after the US.Investment in India, approved by the ministry, totalled $170 billion by the end of last year, mainly in the sectors of electronics, communications and light industry.Bilateral trade has soared from $2.91 billion in 2000 to $18.7 billion in 2005 - an average annual rise of 45 percent.As a symbol of their closer trade ties, the two countries reopened cross-border trade at the Himalayan Nathu La Pass in July 2006 - 44 years after trade ended in the wake of a short border war.According to Goldman Sachs, India will overtake the US to become the world's second largest economy after China by 2042.

January 28, 2007
Saudi Officials Seek to Temper the Price of Oil
BY JAD MOUAWAD
Saudi Arabia, which benefited immensely from record oil prices last year, has sent signals in the past two weeks that it is committed to keeping oil at around $50 a barrel — down $27 a barrel from the summer peak that shook consumers across the developed world.
The indications came in typically cryptic fashion for the oil-rich kingdom. In Tokyo last week, Ali al-Naimi, the Saudi oil minister, said Saudi Arabia’s policy was to maintain “moderate prices.” The previous week, on a stop in New Delhi, he effectively put his veto on an emergency meeting of the Organization of the Petroleum Exporting Countries to prop up prices after oil briefly dropped below $50 a barrel, the lowest level in nearly two years.
The events that propelled oil prices above $77 a barrel last July, then dragged them down again, were beyond the control of any single producer. Still, Saudi Arabia, which is by far the largest oil producer within OPEC and sets the cartel’s agenda, is seeking to avoid a repeat of the dramatic rise in prices while trying to put a floor beneath them.
Nowhere was last summer’s spike in oil prices felt more profoundly than in the United States. As gasoline rose above $3 a gallon, consumers cut their spending elsewhere, tamping down profits in retail, travel and other industries. United States automakers were devastated as consumers fled from large vehicles to smaller ones, which have historically been the specialty of the Japanese; on Thursday, Ford said that 2006 had been the worst year in its history.
The recent slide back to $50 a barrel for oil — which translates to about $2 for a gallon of gasoline — has eased the pressure on the domestic economy, quieting talk that oil prices and the declining housing market would lead to a recession.
The Saudis appear to be rediscovering that painfully high energy prices take a profound toll on the global economy, which in turn reduces demand for their oil. But other motives seem to be at work, too, including the Saudis’ desire to restrain Iran’s ambitions in the region.
How much influence the United States has exerted is an open question. Vice President Dick Cheney met with King Abdullah of Saudi Arabia in Riyadh in November, but his office would not say if oil was discussed. The White House has been supportive of Saudi energy policy, and President Bush and his father are close with Prince Bandar bin Sultan, the Saudi national security minister and former ambassador to Washington.
Although Saudi officials say their oil policy is based on market considerations and not political ones, the meeting in November led to renewed speculation that the kingdom might be tempted to dry out Iran’s ambitions by pushing oil prices down. Prices have already been falling because of mild weather and slowing demand.
Prices at $50 to $55 a barrel are just about right for the Saudis, according to Saudi energy officials — not too high to hurt the global economy, not too low to hurt their own economy. Last year’s record highs meant that the growth in global oil demand slowed to 1 percent in 2006, compared with a 4 percent increase at its peak in 2004.
But 2006 was not the first reminder for the Saudis that too-high prices can backfire. The oil shocks of the 1970s and 1980s also set off a scramble for gas-sipping cars and a brief push to wean the West from its oil dependency. In recent months, the higher prices have rekindled America’s quest for alternatives and propelled energy security to the top of the agenda in the United States and Europe.
Even President Bush, who began his presidency emphasizing the need to increase domestic oil production rather than cutting consumption, called for a reduction in gasoline use over the next decade in last week’s State of the Union address.
High prices have also emboldened rivals within OPEC, among them Iran and Venezuela, which have used their oil revenue to prop up their governments and export their more radical agendas. Saudi Arabia has worked cooperatively with Iran since the late 1990s, when oil producers were panicked by the decline of prices to around $10 a barrel. More recently, Iran has favored rising prices over the moderation that Saudi Arabia seeks. Venezuela also tends to favor higher prices but wields less political influence in the cartel.
“High prices are not in the interest of Saudi Arabia,” said Sadek Boussena, a former OPEC president from Algeria. “We’ve all seen what $70 does: it attracts alternatives, it reduces demand. On the other hand, I don’t think the Saudis want oil below $50. They need the revenue.”
The Bush administration has repeatedly acknowledged Saudi Arabia’s efforts in trying to moderate prices. “Buyers and sellers have a common interest in maintaining reasonable prices for oil,” Samuel Bodman, the energy secretary, said in October.
There is no set formula for setting oil prices. In the 1980s, the market settled on around $18 a barrel as a fair price. In the 1990s, it was ratcheted up to $22 to $25 a barrel. Recently, oil producers have realized they can charge twice that amount, although consuming nations complain that the price is too high.
Mr. Naimi, the Saudi oil minister, borrowing the manner of a careful central banker, is rarely explicit about his plans. His every word is dissected by legions of analysts for the slightest hint of an inflection in policy.
Sometimes, the uncertainty gives rise to more conspiratorial theories. Oil traders have been buzzing in recent weeks about whether Saudi Arabia was seeking to depress oil markets in hopes of crippling Iran’s economy, as a Saudi analyst — albeit not one from the government — suggested late last year in an opinion article in The Washington Post. The Saudis quickly dismissed the claim, but given the tensions in the Middle East, oil and politics remain closely linked.
“It is difficult to work out what the Saudis really want, since they never say things explicitly,” said Leo Drollas, the chief economist at the Center for Global Energy Studies, a London-based research group founded by Sheik Ahmed Zaki Yamani, a former Saudi oil minister. Sometimes, he said, “you have to read between the lines.”
The Saudi government does not disclose what oil price it uses when it builds its budget, but analysts at Samba Financial Group, a bank in Saudi Arabia, say they believe the price is $42 a barrel for 2007, with oil production at about 9 million barrels a day. With oil averaging $66 a barrel last year, the kingdom recorded a budget surplus of nearly $71 billion, Samba said, five times more than in 2005.
Saudi officials repeatedly point out that they do not set the price of oil on international commodity markets — they point the finger at hedge funds and other speculative traders for the heightened volatility in recent years. Nor, they say, do they run their oil industry with political considerations in mind.
Mr. Naimi has led the ascent of oil prices since 2000 and managed his various partners within OPEC toward better discipline within the cartel. Last fall, under Saudi stewardship, OPEC members twice agreed to cut their output to prevent prices from falling too steeply.
More than any specific target, the Saudis have always sought stability in oil prices. But stability may prove just as elusive this year as it did last year, given how vulnerable global oil supplies remain to the vagaries of the weather as well as political turmoil in the Middle East and Africa.
Although OPEC’s 12 members decide by unanimous votes whether to increase oil production — which lowers prices by making supply more plentiful — consumer pressures ultimately hold sway, and an extremely cold winter followed by a very hot summer could override whatever price goals the Saudis have set.
Not everyone is reading the Saudis’ recent public signals — scant as they are — in the same way. “The Saudi policy has not changed,” said Roger Diwan, an energy analyst at PFC Energy. The Saudis, he said, have “led the way in managing the market. They showed leadership in OPEC.”
But Amy Myers Jaffe, the associate director of Rice University’s energy program, said she thought that Saudi policy had shifted, backing away from a defense of higher prices.
“The debate in Saudi Arabia is about what is the right strategy, where demand is headed, and what is the right amount of investments,” she said. “And that’s a very tough question.”
Jim Rutenberg contributed reporting.

The United States's calculations in relation to Iran and Syria cannot ignore the influence in the region of China and Russia.

The east moves west Paul Rogers 25 - 1 - 2007

Two weeks after the announcement by President Bush of a 20,000-strong "surge" in the number of United States troops in Iraqi, it is already clear that an assessment of the initiative's impact on the overall levels of violence in Iraq will take months. Of equal or even greater concern to US military planners is the wider middle-east strategic environment, and evidence of evolving relationships between several of the US's key strategic rivals.
The intention outlined by the president on 10 January 2007 is to boost United States forces in Baghdad from 24,000 to about 41,500 by June; Iraqi forces are planned to increase from 42,000 to 50,000. It remains unclear whether these Iraqi forces will be any more effective than in the recent past, and it is primarily for this reason that almost all of the additional 17,500 US troops will go to Baghdad rather than other volatile parts of Iraq, such as Anbar province (see Thomas E Ricks, "General May See Early Success in Iraq", Washington Post, 23 January 2007).
The aim of the Baghdad operation is to create a higher level of security, partly by a sheer increase in numbers and partly by deploying the US troops in a number of smaller, neighbourhood-based camps rather than in the few large and heavily protected bases that have been used up until now.
In one respect this is a return to the situation of 2003-04 when US forces were deployed in many scores of bases, and a reversal of the trend to consolidate in just a few. At the same time, it represents something of a new tactic, in that it relies on Iraqi security forces working hugely more effectively than before; though the US forces will still be attempting to exert control before handing over to the Iraqis. It is possible that the plan may work, but the experience of previous initiatives suggests that three concerns about the Iraqi insurgents' reaction will be uppermost in the minds of US military planners.
Paul Rogers is professor of peace studies at Bradford University, northern England. He has been writing a weekly column on global security on openDemocracy since 26 September 2001
The first is the frequent tactic of insurgents of avoiding combat, dispersing from an area they had previously dominated, and waiting for US forces themselves to evacuate after a shadow "victory" before moving back. The implication is that US forces might need to maintain an almost permanent presence in areas they are able to secure. If it proves necessary to sustain troop levels at the new peak, this would carry major political consequences for Washington.
The second concern is another common insurgent pattern, of lying low and observing US operations, in order to develop new tactics as a result of the intelligence gathered.
A vivid current example was an extraordinary raid in Karbala on 20 January by insurgents who dressed in Iraqi military uniforms and drove black SUVs that were typical of those used by government forces. They looked and sounded so realistic that they were allowed through a security checkpoint into a headquarters area; there they engaged in a twenty-minute firefight, using percussion bombs, grenades and light weapons, and killed five US soldiers before escaping.
The third concern is that the most likely consequence of the US's "surge" policy is that insurgents disappear from the greater Baghdad area and concentrate in other towns and cities to the west and north. Since almost all the US troop reinforcements are heading for Baghdad, the already insecure environment in Anbar province (in particular) may become virtually a free-movement zone for insurgents.
If the insurgents respond with any or all of these tactics, a short-term lull in the levels of violence in Baghdad would not necessarily be a signal of the new policy's definitive success; only if it was to last for a year or more would it be significant.
Syria and Russia
The United States also faces overall strategic problems in its middle-east regional policy, which are highlighted by the Bush administration's response to (and effectively, quick dismissal of) the Iraq Study Group report. Most of the media attention surrounding this issue has focused on the White House's refusal to endorse the report's preference for a gradual troop withdrawal from Iraq; less prominent has been the rejection of the other main Baker recommendation, for active diplomatic engagement with Iran and Syria.
Indeed, as with the troop surge, the White House seems determined to do the opposite: it has directed increasingly vigorous rhetoric towards Damascus and Tehran, accused both regimes of collusion in the Iraqi insurgency, and backed its combative tone by deploying a second US carrier battle-group to the region.
The problem is that Syria and Iran do not constitute weak, isolated entities which are supine in face of Washington's wrath, but are being supplied with new armaments by Russia and China. Syria, for example, is seeking to replace its obsolete aircraft and acquire new anti-aircraft missiles and anti-tank weapons. Bashar al-Assad was accompanied by a powerful military delegation (including the head of the air force) on a visit to Moscow in mid-December 2006, and discussions there reportedly focused on buying new interceptors and upgrading older squadrons (see Riad Kahwaji & Nabi Abdullaev, "Syria Seeks Russian MiGs, Air Defence Missiles", Defense News, 8 January 2007 [subscription only]).
Such Russian sales to Syria, however, are far outstripped in significance by the provision of two other weapons systems: the long-range S-300 surface-to-air missile (which would pose a major problem for the Israeli air force), and the Iskander-E surface-to-surface ballistic missile (which, if deployed on the Golan Heights, could reach virtually all of Israel).
Intense opposition from Washington is likely to prevent Vladimir Putin agreeing to the Iskander-E proposal, making the S-300 deal the rather more likely one to go through. But even if both are aborted, the other arms transfers now being negotiated will allow Syria to modernise key parts of its armed forces.
Iran and China
China is providing another range of weapons systems in the region, this time to Iran. Over the last decade or so, the Chinese armaments industry has invested heavily in producing a wide range of anti-ship missiles, many of them designed to be fired from coastal batteries. The fact that the United States has by far the world's most powerful navy, and includes a fifth fleet dedicated almost entirely to ensuring a strong presence in the Persian Gulf and the Arabian Sea, makes any enhancement of Iran's anti-ship defences a major worry.
The current edition of a defence publication puts the matter starkly: "China has become an anti-ship missile powerhouse, developing a whole range of indigenous designs, establishing innovative uses of technology and strategic international partnerships" (see Robert Hewson, "Dragon's Teeth - Chinese missile raise their game", Jane's Navy International, January-February 2007).
China was, until quite recently, a regular purchaser of Russian weapons systems. Its primary consideration was the defence of the homeland from US naval forces, particularly the carrier battle-groups of the Pacific fleet. Today, it is concentrating on the development of an indigenous capacity, as well as an export market - while continuing to purchase some Russian systems where it feels there are gaps to fill.
In addition to his weekly openDemocracy column, Paul Rogers writes an international security monthly briefing for the Oxford Research Group; for details, click here
Paul Rogers's new book is Into the Long War: Oxford Research Group, International Security Report 2006 (Pluto Press, November 2006)
It these arms sales lubricate the China-Russia strategic partnership, the partnership between China and Iran goes much deeper than weapons; as Navy International says, "the two nations have advanced from a straightforward seller/buyer relationship to one of technology transfer and weapons co-development".
This level of cooperation means that Iran can modify and otherwise develop Chinese designs specifically for conditions in the Persian Gulf and the northern Arabian Sea, and to meet the challenge posed by the ships of the US navy's fifth fleet.
It is worth remembering here that the US navy destroyed a substantial part of the Iranian navy in a series of operations at the end of the Iran-Iraq war in 1988. The Iranian military and political leadership still recalls these incidents, much as the US state department cannot forget the hostage crisis of 1979-80.
The belligerent statements on both sides of the Iran-United States divide, drawing on such historical memories and reinforced by current developments, highlights the risk of military confrontation. If it were to happen, the Iranian-Chinese military connection would come rapidly to the fore; the likely consequence would be an even greater Chinese involvement in the region. China's rapidly increasing dependency on imported oil is a factor in its own calculations no less than in those of the United States.
Measured in terms of months, what happens in Iraq is the main focus of western analysts. Measured in years, the Iran-China connection might be just as significant.

WESTERN MAJORS SIGN AGREEMENT OF INTENT ON TRANS-CASPIAN OIL TRANSPORT SYSTEM

As anticipated some time ago (see EDM, August 17, 2005, March 16, 2006), Moscow’s extortion of Western companies in the Caspian Pipeline Consortium (CPC) on Russian territory has finally persuaded the companies to choose a trans-Caspian solution for the export of their rapidly growing oil output in Kazakhstan. The trans-Caspian solution is also the optimal one for the future output from Kazakhstan’s super-giant offshore Kashagan field.On January 24 in Astana, a Memorandum of Understanding to create a trans-Caspian oil transport system was signed by the participant companies in the TengizChevroil consortium, those in the KCO consortium, and Kazakhstan’s national oil and gas company KazMunayGaz (Interfax, January 24)TengizChevroil consists of the American companies ChevronTexaco and ExxonMobil, KazMunayGaz, and the Russian-American LukoilArco, with stakes of 50%, 25%, 20%, and 5%, respectively. The consortium is developing the giant onshore field Tengiz, richest oilfield in operation in Kazakhstan. The KCO consortium includes Italy’s Eni-Agip, Total of France, ExxonMobil, and Royal-Dutch Shell, each with an 18.5% stake, ConocoPhillips of the United States with 9.25%, and KazMunayGaz and the Japanese-based Inpex with 8.33% each. This consortium is developing the offshore Kashagan and adjacent oilfields, the first production from which is due by 2010-2011.Many of these producer companies are also members of the Moscow-pressured CPC transport consortium, to wit: KazMunayGaz, Chevron, Lukarco, Shell (through Rosneft-Shell), Mobil, and Agip, with stakes of 19%, 15%, 12.5%, 7.5%, 7.5%, and 2%, respectively. The Russian government with 24% is the single largest shareholder in the CPC pipeline, which runs to Russia’s Black Sea port of Novorossiysk, annually carrying approximately one half of the total oil exports from Kazakhstan. With all the other pipelines out of Kazakhstan running also to Russia, the Western companies have evidently, if belatedly, concluded that they need alternative transit routes.The January 24 agreement envisages a shuttle system of sea tankers to carry oil from Kazakhstan to Azerbaijan and into the Baku-Tbilisi-Ceyhan (Turkey) pipeline. The tanker system’s capacity is projected at 25 million tons per year in the first stage and 38 million tons in the second stage. The oil port on the Kazakh side will be built in Kuryk, in preference to the initially chosen Aktau. The Kuryk Bay provides a natural shelter that makes possible uninterrupted operations in winter and during storms. Meanwhile, the port of Aktau (which also handles dry cargos) is already being used to the limits of its design capacity.The transport system’s cost is estimated at $3 billion. The port and tanker line will be primarily dedicated to the production from Tengiz and Kashagan with the adjacent oilfields.Presenting the signed Memorandum, KazMunayGaz General Director Kairgeldy Kabyldin confirmed that Russia was posing unacceptable conditions for the planned expansion of the CPC pipeline, thus making it necessary for the companies to launch the trans-Caspian transport system for their growing oil output. However, Kabyldin -- and, the previous week, Energy and Natural Resources Minister Baktikhoja Izmuhambetov -- noted that negotiations would continue with the Russian government over that pipeline’s expansion.In a move clearly meant to pressure Western investors, the Russian government’s inter-agency group on the CPC pipeline omitted the issue of expanding the pipeline from the group’s annual report, just forwarded to the Russian president and prime minister. By the Russian group’s controversial accounting, the CPC consortium -- that is, basically the Western companies -- is currently $5 billion in the red.The CPC pipeline carried 31 million tons of oil from Kazakhstan in 2006, surpassing the line’s first-phase capacity of 27 million tons, though still less than one half of the line’s planned second-phase capacity of 67 million tons.Moscow’s onerous terms on CPC’s Western shareholders, and consequent uncertainty over the export outlets, had become a factor in delaying the production schedule at Tengiz and start of production at Kashagan. According to data just released by TengizChevroil, its production declined from 13.6 million tons in 2005 to 13.3 million tons in 2006, instead of the planned second-phase production ramp-up. At Kashagan, the first commercial production (“early oil”) will come on stream two years after the initially anticipated 2008-2009.The January 24 Memorandum of Understanding is a milestone along a negotiating process that dates back to the Clinton Administration’s 1998 initiative for the East-West Energy Transport Corridor, a centerpiece of which was the planned Aktau-Baku-Tbilisi-Ceyhan oil export route. The process received strong impetus last year with the commissioning of that pipeline and the signing of an interstate agreement by Presidents Ilham Aliyev of Azerbaijan (a leading proponent of the project) and Nursultan Nazarbayev of Kazakhstan to create a trans-Caspian oil transport system (see EDM, June 2, 19, 21, 2006, January 23, 2006).The memorandum now signed by the companies should be understood as an irreversible decision to proceed with creating this system, and not as a negotiating tactic vis-à-vis Moscow regarding the terms of using the CPC pipeline. Moscow’s terms will never improve if Russia retains its overwhelming sway over the transit of oil from Kazakhstan.
--Vladimir Socor

U.S. Scholar Highlights Russia’s Energy Clout
Created: 08.12.2006 10:19 MSK (GMT +3), Updated: 11:06 MSK
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Voice of America

U.S. scholar Marshall Goldman says energy wealth and control over export pipelines have made Russia more powerful than at any time in its history. Professor Goldman told the Jamestown Foundation that Russia’s post-cold war power is built on its oil and gas resources. He said both eastern and western Europe have become dependent on Russia for oil and gas and that alternative supplies are not available. The recent boom in oil and gas prices, said Professor Goldman, has greatly boosted Russia’s economic and political clout.“I end up arguing, and I’m putting my neck out, that Russia is more powerful now than it ever was during the czarist era or the Soviet era,” he noted. “In the Soviet era there was mutually assured destruction. They had nuclear weapons. We had nuclear weapons. We didn’t use them, because we were worried they would and vice versa. Here you don’t have that kind of restraint.”Goldman says Russia has a long history of using oil and gas as a foreign policy tool.“In the Soviet era they cut off the flow of oil to Yugoslavia under Tito, to Israel after Sinai, to China after Mao broke away, to Cuba, to Finland, and more recently to Lithuania because there is a dispute over who is going to control the refinery there that Yukos is trying to sell,” he explained.Yukos is Russia’s second largest oil company.Goldman attributes much of President Vladimir Putin’s popularity to the economic resurgence that the country is experiencing, in large part because of its energy exports. Russia now has the world’s third largest foreign currency reserves, after China and Japan. Mr. Putin’s re-nationalization of state assets and moves against the economic oligarchs who wielded enormous power under Boris Yeltsin have also been popular.Professor Goldman says Russia’s geographic position between Europe and Asia may make energy-hungry China vulnerable to Moscow, primarily because so many energy pipelines run through Russia.“Just as the Europeans have become dependent on Russia for its gas, if the pipelines are built to China, the Chinese will become equally vulnerable,” he added.Russia, concludes Goldman, in just nine years has made an extraordinary transition from economic weakness to great strength. He credits President Putin with restoring national pride and ending the threat of political fragmentation within Russia.

What Will Others Do?
By David A. HarrisJanuary 24, 2007

The Iranian president's recent visit to Venezuela, the second in less than a year, his attendance at the inauguration of Ecuador's new leader last week, where he also met with his Bolivian counterpart, and a stopover in Nicaragua, all underscore Iran's increasingly close contact with Latin America. When Iran's foreign policy is discussed, it usually involves the Middle East, but Iran's ambitions are, in fact, global. Latin America has become a focal point of Iran's interests, beginning with Cuba, Venezuela, Bolivia, Ecuador, and Nicaragua. With the exception of Cuba's ailing and unelected despot, the current leaders of these countries were elected on platforms that included heavy doses of anti-Americanism, music to Iran's ears. Iran seeks a global alliance to counter what President Ahmadinejad calls the "hegemonic system," which translates into American domination of the international system. In these five Latin American countries, he's found some like-minded friends. Of greatest concern, because of its size and its leader's proclaimed ambitions, is Venezuela. The number of Iranian-Venezuelan bilateral accords is about 130. Moreover, there are reports of clandestine cooperation in defense and intelligence. In Managua, the two leaders signed agreements for cooperation in about 25 fields. Mr. Ahmadinejad has said, "We should make our presence felt in different parts of the world to promote our values of independence and justice because there are talented people in Iran who can create jobs and invest. They would also be effective tools for the spread of Iranian culture." Promote Iranian "values" and spread "Iranian culture"? Exactly which? Nuclear weapons development? Suppression of human rights? Calls for destruction of another U.N.-member state? Holocaust denial? Support for terrorism? It sounds like the game plan for a modern-day version of the Comintern. Iran and Venezuela have one key strategic asset — oil — and they're playing it for all it's worth. After all, they are the fourth and fifth leading exporters, respectively, of oil in the world today. The high price of oil has filled the coffers of both countries, allowing the Iranians to invest heavily in their nuclear and missile programs and permitting both countries to sign major arms deals with Moscow. But their hands may not be as strong as they think. The economies of Iran and Venezuela are far shakier than their income would suggest. The recent drop in oil prices means less revenue. Money spent outside to spread Iranian "values" — as well as Mr. Chavez's proclaimed Bolivarian revolution in the region with himself at the helm — means less for domestic use. At the same time, the previous oil price shock has finally spurred major consumers, like America and China, to begin long overdue efforts to reduce dependence on imported oil. Moreover, Mr. Ahmadinejad may be in trouble at home. Last week, 150 Iranian parliamentarians signed a letter condemning his trip to Latin America. They asserted he should have been home dealing with a spiraling economic crisis that includes the increasingly successful impact of an American-led effort to cut off Iranian access to foreign credits and loans. Rumors are spreading in Iran that his days may be numbered. Iran also has made one significant Latin American enemy — Argentina. In July 1994, 85 people were killed in Buenos Aires when the headquarters of AMIA, the central Jewish organization, was destroyed in a terrorist attack, two years after the Israel Embassy was targeted. After years of failed investigations, President Kirchner appointed a special prosecutor, Alberto Nisman, who doggedly pursued the case. In October 2006, Mr. Nisman issued his long-awaited report on the 1994 bombing, confirming what had long been suspected. The plot was hatched in Tehran. Mr. Nisman named seven top-level former Iranian government officials, including a former president, and one Hezbollah operative. The report was approved by the presiding judge and submitted to Interpol, which issued arrest warrants for the eight. Mr. Kirchner and Uruguay's president, Tabare Vazquez, refused to attend the inauguration of Ecuador's president, Rafael Correa, because Mr. Ahmadinejad was present. Argentina expects the support of its neighbors in moving this case forward through Interpol and in seeking to isolate Iran. Five nations already have given Argentina their answer by embracing Iran. The question is what the others will do. Even after the Nisman report, Hezbollah is not banned on Argentine soil, much less elsewhere in the region, although Buenos Aires is now discussing the matter. It is hoped that Argentina will take the lead in repudiating the terrorist group and ask others in the region to do the same. Iran has gained a foothold in the Western Hemisphere and is seeking to expand its reach. We and our regional friends must seek to ensure that a bad situation does not become worse. Mr. Harris is executive director of the American Jewish Committee.

Background to the Russian assault on Chechnya: a power struggle over Caspian oil
By Chris Marsden 18 November 1999
Back to screen version
Tensions between Russia, the US and Europe have escalated in the course of Russia's seven-week military campaign against Chechnya. Since Moscow launched the war in September an estimated 4,000 Chechen civilians and 1,200 Chechen troops have been killed and 200,000 civilians have been forced to flee from their homes.
In the run-up to Thursday's summit of the Organisation for Security and Cooperation in Europe (OSCE), being held in Istanbul, Turkey, the US and European governments issued statements denouncing Russia's bombing of Grozny and other major cities. Russian President Boris Yeltsin dismissed all such criticisms, saying the Western countries "have no right to blame Russia for destroying bandits and terrorists on its territory”.
There is an abundance of cynicism and hypocrisy on all sides. The US, Britain, France, Germany and the other NATO powers express shock and dismay at Moscow's indiscriminate bombing of cities and other civilian targets in Chechnya, only a few months after their own brutal air assault on Serb towns and cities. As one Russian official complained, when American missiles killed Serb civilians, Washington called it “collateral damage”, but when Russian bombs kill Chechen civilians, American officials talk of human rights atrocities.
Not one of the thousands of Western journalists covering the OCSE summit has noted the obvious irony of American and European leaders gathering to proclaim their devotion to human rights, democracy and peace in a country notorious for police state repression and one of the world's longest and bloodiest military campaigns against an ethnic minority—Ankara's war against the Kurds in the southeast of the country.
The Russians, for their part, justify a brutal aggression to maintain Moscow's grip on the land, resources and impoverished peoples of the northern Caucasus as a police action against terrorism.
As always in conflicts between major capitalist powers, there are the declared motives and the real, unstated aims and interests that lie behind the propaganda. A measure of how sharp antagonisms have become is the statement made last Friday by Russian Defence Minister Igor Sergeyev. Accusing the US of supporting the Chechen rebels, he told a meeting of Russian military top brass, "The United States national interests require that the military conflict in the north Caucasus, fanned from the outside, keeps constantly smouldering.” Sergeyev added, “The West's policy is a challenge to Russia with the aim of weakening its international position and ousting it from strategically important regions."
Reporting Sergeyev's comments, the November 15 New York Times noted, “Such suspicions have been fuelled in Russia by American attempts to persuade former Soviet republics in the region to build an oil pipeline that would skirt Russia and Iran.” This broadly hints at a key issue in the present conflict in Chechnya. What is being played out there is a great power struggle between the US, Russia and Europe over control of the strategically vital Caucasus, which borders on the Caspian Sea, site of the world's largest deposit of untapped oil reserves. At stake in this contest are billions of dollars in oil and gas revenues and the vast military and geopolitical advantages that fall to whichever power gains a dominant position in Central Asia.
Transcaucasia has strategic significance for Western companies and the US and European governments because it serves as a bridge between Caspian oil fields and Europe, via either the Black Sea or the Mediterranean. In October of 1997 Le Monde Diplomatique made a sober estimation of the implications of friction over control of the Caspian for relations between the US and Russia, writing, “American oil companies were interested in the Caspian long before the State Department came up with a coherent policy for the area.... The negotiation of oil contracts enabled Washington to show a direct interest in the region.
“The US government sees it as an extra source of energy, should Persian Gulf oil be threatened. It also wants to detach the former Soviet republics from Russia both economically and politically, so as to make the formation of a Moscow-led union impossible. In an article published in the spring, former Defense Secretary Caspar Weinberger wrote that if Moscow succeeded in dominating the Caspian, it would achieve a greater victory than the expansion of NATO would be for the West.”
Concluding its overview of the situation, Le Monde Diplomatique wrote: “The Caucasus is an amazing mosaic of alliances, with each [republic] seeking the patronage of one or more foreign powers. As the new arrival, the United States is trying to secure for itself a major role, with a commensurate reduction in the Russian presence and Iranian ambitions. Jealous of these developments in what has only recently become foreign territory, Russia is still reeling from its [1995] defeat in Chechnya. In short, the next stage in Caucasian history will be played out between the ascendancy of American power and the resistance of Russia.”
For several years, rival pipeline projects have been vying for control of oil supplies. US corporations Exxon, Pennzoil and Unocal are involved in an oil consortium of (Chechnya's neighbour) Azerbaijan and 11 Western companies, led by British-US company BP Amoco — the Azerbaijan International Oil Consortium (AIOC). Its aim is to construct a pipeline to carry the bulk of Azeri oil output from the Caspian seabed. American petroleum concerns are currently responsible for more than 50 percent of oil investment in Azerbaijan.
The US government has insisted from the outset that the pipeline run from Azerbaijan to Turkey, passing through Chechnya's other near neighbour, Georgia, despite the fact that this route will entail double the cost of a much shorter route running between Azerbaijan and Iran. Washington's aim is to ensure that oil supplies be immune from both Russian and Iranian interference. The US-backed pipeline could carry 50 million metric tons per year (one million barrels per day) from Baku to Turkey's Mediterranean port of Ceyhan.
Europe's interest in the Caspian region is also substantial. Its central project is a trade link between the Black Sea and Central Asia, through the construction of a highway from the north Turkish industrial town of Samsun to the Georgian port of Batumi. The Shah Deniz oil field in the Caspian is being explored by a consortium led by European corporations, without US involvement, which could erect a pipeline through Iran.
Disputes over oil were at the heart of Russia's earlier decision to go to war against Chechnya in December 1994, because its sole operational pipeline for Caspian oil was under threat from Islamic separatist forces. The separatist rebel leaders in Chechnya, who are known to have links to organised crime interests in Europe and elsewhere, place potential control over oil routes and pipelines in the northern Caucusus very much at the centre of their own calculations.
A significant factor in Russia's decision to end its military operation in 1996 was fear that it would lose any chance of beating off its US and European commercial rivals for control of Caucasian and Central Asian oil supplies. Since then, Russia has sought to elaborate its own response to US economic encroachment in the Caspian. Last November 29, the Caspian Pipeline Consortium led by Russia announced plans for a $2.2 billion pipeline to carry Kazakh oil from the Tengiz field in the Caspian Basin to the Russian Black Sea port of Novorossiik, bypassing rebel Chechnya.
The 1,500-kilometre pipeline was the first major project tapping the Caspian Basin's resources to get off the ground. Russia advanced the pipeline as an alternative to the US-led project for Azerbaijan and secured a temporary contract to pump 5 million metric tons of Azeri oil a year until 2003, when the US-led AIOC project is slated to be fully operational.
When bombings were carried out in Dagestan in August by a force of 1,200 Chechen rebels, the Russian pipeline was forced to close temporarily. This disruption provided a major impulse for the Yeltsin government to prepare a new assault on Chechnya.
Russia's concerns over Chechnya grew as a result of the US-NATO war against Serbia and the subsequent NATO occupation of Kosovo. The war ended with NATO Supreme Commander General Wesley Clark ordering British and French forces to launch a military assault to prevent Russian troops from taking control of the Pristina airport on June 12. The US general's orders were rejected by the British commander of the NATO forces on the ground in Kosovo, General Michael Jackson, who told Clark, “I'm not going to start World War III for you.”
The significance of these events—and the establishment of Kosovo as a de facto US protectorate—was not lost on the Russian military and political elite. At the same time the Yeltsin government and its policy of deferring to the Western imperialist powers were badly discredited by the Balkan War.
Against a background of growing popular hostility towards the US, the most right-wing nationalist forces within the nomenklatura and the military were emboldened to insist that a stand be made to safeguard Russia's interests in the Caucasus. The intervention in Chechnya was meant to be a warning to the Western powers—and the surrounding Caucasian republics—that Russia was still a force to be reckoned with. As the chief of the Russian air force, Anatoly Kornukov, warned this week, "We are restoring order in our own country and no one has the right, or will stop us, from doing so. Russia is not Iraq, it is not Yugoslavia, and any attempt at [foreign] interference will be resolutely blocked."
The increasingly militaristic posture of the US, and the aggressively nationalist response of Russia, threaten far worse than the human tragedy that is presently unfolding. America's new plan to create a Star-Wars style "theatre missile defence" as a national shield against nuclear missiles is in breach of the 1972 US-Russian anti-ballistic missile treaty. The ABM treaty restricts the US and Russia to siting their missiles at one location each—North Dakota and Moscow. Next year, however, the Clinton administration is set to approve a new anti-ballistic system in Alaska supposedly to prevent attacks by “rogue states” such as North Korea, Iran and Iraq.
Yeltsin wrote a letter to Clinton, saying these plans could have "extremely dangerous" consequences for arms control accords, while General Vladimir Yakovlev of Russia's Strategic Rocket Forces said that Russia would consider itself "freed from all arms control obligations" should the ABM treaty be altered. At the beginning of this month, Russia test-fired two missiles, including an anti-missile rocket and a nuclear-capable SS-21 tactical ballistic missile, for the first time in six years.

Gaining control of Russian Oil
Washington's efforts to depose Vladimir Putin and gain control of Russian Oil reserves

By John Laughland
Global Research, October 25, 2004
Sanders Research
Washington's efforts to depose Vladimir Putin and gain control of Russian Oil reserves
The fax-back service for pre-written newspaper articles must have been working overtime these last few weeks at Langley, Virginia. A flood of articles has appeared in the press attacking the Russian president, Vladimir Putin, especially in the wake of the Beslan massacre. They all have the same structure. Whenever you read the words, "Nothing can excuse the murder of children," you know that a big "But" is looming. Such articles invariably go on to explain why the murder of children is indeed understandable, and the reason usually given is Russian authoritarianism, against which the Chechen rebellion is natural and legitimate.[i]
During the reign of Chechen leader Djokar Dudaev, while Boris Yeltsin was president, and while the West was happily looting Russia, the Chechens were often described in the Western press as a bunch of bandits and Mafia gangsters. As recently as 2001, indeed, President Bush said that Vladimir Putin was a man he could trust - as if world leaders required or enjoyed such benediction from the world emperor. But those events are in the past, and Russia is now instead branded a dictatorship. Colin Powell gave an interview to Reuters on 14th September in which he berated Putin for rolling back democracy and instructed him to seek a political solution to the Chechen question, in whose cause schoolchildren had been shot in the back while trying to escape their captors. [ii] That the US administration has now formally turned against Russia, precisely at the moment when the terrorist threat against her is there for the whole world to see, both explains this sudden glut of articles by pro-US journalists and also poses the question: "Why?"
One of the articles, perhaps inadvertently, spilt the beans. The Chechen leader Ahmed Zakayev wrote in The Wall Street Journal on 29th September 2004 [iii] that
"The West has a clear choice. It can continue to support the KGB dictatorship of Mr. Putin, which sooner or later will turn against the West and side with its enemies through its strategic goal of undermining the "unipolar" world order and keeping oil prices high. Or it can change course and insist on resolving the Chechen conflict through negotiated settlement." (my italics).
In other words, the "negotiated settlement" in Chechnya, which the US Secretary of Defence, Colin Powell, has instructed the Russian government to seek, is the way to prevent Russia from ever counter-balancing the United States in world affairs, and to get the oil price down.
Where is the connection? Chechnya borders Georgia, and Georgia, like Azerbaidjan, is on the fast track to join NATO. There are already hundreds of US troops in Georgia, training the local forces. They are there for two reasons: first, to protect the US-built Baku-Tbilisi-Ceyhan pipeline; secondly - and this follows from the first - to assist Georgia in recuperating her two secessionist territories, South Ossetia and Abkhazia. It will not do to have Russia anywhere close to the pipeline, and she has troops in both these areas. Pushing Russia comprehensively out of the Caucasus, and humiliating her, requires victory for the Chechens. An independent Chechnya may also be the prelude to the longer-term break-up of Russia herself: the CIA predicted that oil-rich Siberia might escape Moscow's control in its report, Global Trends 2015, published in April. This imperative of getting the oil price down, and of establishing control over the sources and transport of hydrocarbons, and has become all the more urgent as the situation in Iraq deteriorates. Oddly enough, it was Mikhaïl Khodorkovsky, the now-imprisoned Russian oil billionaire, who first drew my attention to the true American war aims in Iraq, when Chris Sanders and I met him in September 2002.[iv] Khodorkovksy feared that if the US gained control of the Iraqi oilfields, it would pump out so much oil that the price would fall to $12 a barrel. This, he told me, would destroy the Russian oil industry and Russia herself. His worst fears have gone unfulfilled for one simple reason: the unexpected tenacity of the Iraqi resistance.
This is why US strategists are now looking to make up for the mistakes they have so spectacularly made in Iraq. It is this, and not any real change in the internal political situation in Russia, which explains the West's turn against Putin: the West needs to gain control of Russian oil. The West's failure in Iraq is as striking as its success in Eastern Europe. The former communist states of Europe have now been comprehensively colonised by the US and its European allies. The political penetration of them is now total, as became clear in February 2003, when the US was able to call on heads of state and government in every single East European member of the EU and NATO to produce an open letter supporting the impending Anglo-American attack on Iraq, at a time when the whole of the rest of the world was lining up against it. Even (perhaps particularly) the Bosnian Serbs, whose terrifying 'nationalism' - according to the New World Order fairy-tale version of events - is supposed to have set the Balkans alight in the 1990s, have shown no desire whatever to get rid of the American military bases implanted in their midst since then. The fact that the height of Slavic resistance to the command "Jump!" is to ask for permission to smoke another cigarette first was undoubtedly the reason why American strategists were notoriously convinced that colonising Iraq would be 'a cakewalk'. Russia also presents the advantage of being the second or third largest producer of oil in the world (after Saudi Arabia and perhaps Iraq) and having the world's biggest reserves.
Simultaneously, efforts are being redoubled to crank into action the various pipelines which are supposed to transport Caspian oil to Western markets. One of these is the Brody pipeline which runs between the Ukrainian town of that name and the Black Sea port of Odessa (a Russian city but also in Ukraine). The Brody pipeline was initially supposed to take US-controlled Caspian oil to Western markets, but it has instead been pumping Russia oil, something the Americans do not like.[v]
So the New World Order strategists are determined to put their man in control of Ukraine, at the presidential election on 31st October. Huge influence, and presumably money, is being pumped in to ensure a victory for Victor Yushchenko. Paul Wolfowitz said in Warsaw on 5th October that Ukraine should join NATO;[vi] Mark Brzezinski and Richard Holbrooke have rattled their sabres over Ukraine,[vii] and Anders Aslund, the architect of Yelstin's mass larceny, has eloquently outlined the West's strategic interest in that country.[viii]
These national strategic interests are, as ever, supported by the private interests of the powerful people lobbying for this new anti-Putin policy. They include people like David Owen and Jacob Rothschild: the former is Yukos' representative in Britain, the latter put up much of Khodorkovsky's original money, and sits (together with Henry Kissinger) on the board of the Open Russia Foundation, a Yukos front.[ix] They also include Anders Aslund, one of the signatories of the AEI's Open Letter, who works for the Carnegie Endowment for International Peace, which is funded by Yukos.[x] Conoco Phillips - the strategic ally of Chevron, on whose board Condoleezza Rice sat for many years - has recently announced a "strategic alliance" with Lukoil, the second largest private oil company in the world,[xi] and Conoco Phillips is said to want a controlling stake in the Russian company.[xii] Before Khodorkovsky's arrest, indeed, it was said that he wanted to sell Yukos to an American company.
Cheap oil is a matter of life and death for the US, and it is a matter of considerable personal importance to many powerful people. The maintenance of a US-dominated unipolar world, especially in monetary affairs, is also an absolute imperative. Anything which stands in the way of these imperatives must be crushed - and Russia stands in the way of both.
Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization.To become a Member of Global ResearchThe CRG grants permission to cross-post original Global Research articles on community internet sites as long as the text & title are not modified. The source and the author's copyright must be displayed. For publication of Global Research articles in print or other forms including commercial internet sites, contact: crgeditor@yahoo.com www.globalresearch.ca contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available to our readers under the provisions of "fair use" in an effort to advance a better understanding of political, economic and social issues. The material on this site is distributed without profit to those who have expressed a prior interest in receiving it for research and educational purposes. If you wish to use copyrighted material for purposes other than "fair use" you must request permission from the copyright owner.For media inquiries: crgeditor@yahoo.com© Copyright John Laughland, Sanders Research, 2004 The url address of this article is: www.globalresearch.ca/PrintArticle.php?articleId=556
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Iran’s Contribution to the
Civil War in Iraq
BY MOUNIR ELKHAMRI
The opinions expressed are those of the author and do not represent those of the Department
of Defense and the U.S. Army.
While the press debates whether or not there is a civil war in Iraq, there is a strong history
of Iranian-sponsored unrest in Iraq that continues to the present. Captured Iraqi
intelligence documents, now maintained by the Foreign Military Studies Office, show Iran’s deep
penetration in Iraqi society and institutions. Iran clandestinely supported the U.S. invasion of
Iraq and took measures to turn it to her advantage.
The Iranian government maintained armed formations, such as the Badr Corps, inside Iraq
prior to the U.S. invasion. While Saddam Hussein felt that he could dissuade a U.S. invasion
through world opinion and the United Nations, Iran anticipated and welcomed the U.S. invasion
since it would destroy her chief enemy in the region.
Iran has now moved covertly and overtly onto Iraq to subvert Iraqi institutions and eventually
to assume total control. Iran has now entered a wider and more dangerous game by subverting
the Iraqi police and armed forces into a “greater Shia” cause, which Iran hopes will lead to the
fragmentation of Iraq and the inoration of oil–rich Shia lands into Iran.
IRAN AND IRAQ: Iran’s Contribution to the Civil War in Iraq
Mounir Elkhamri is a Middle East Military Analyst for the Foreign Military Studies Office
at Fort Leavenworth, Kansas. He has native fluency in Arabic and working fluency in
French and German. He is a graduate of the University of Missouri, Kansas City and is currently
working on his Masters in Middle East Studies. He is a sergeant in the U.S. Army Reserve and
just completed an 18-month tour in Iraq where he worked with a logistics brigade, a maneuver
battalion and a Special Forces ODA team.
He also served as the personal cultural advisor and translator for Major General Rodriguez—
the commander of Task Force Freedom. He was also a translator for various high
ranking officials, such as Secretary of State Condoleezza Rice, U.S. Ambassador Dr. Zalmay
Khalilzad, General George Casey, LTG John R. Vines and others. He was point man for many
initiatives working with the local Iraqis, the Iraqi Army, the Iraqi police and Iraqi politicians.
In 2004, Mounir co-authored the article “Who will be the next President of Egypt?” and a
study on “Urban Population Control in Counterinsurgency.” In 2006, Mounir wrote the articles:
“Dealing with the Iraqi populace: An Arab-American soldier’s perspective” and “Dealing
with the new Iraqi security forces.”
THE JAMESTOWN FOUNDATION
MISSION
The mission of The Jamestown Foundation is to inform and educate policymakers
and the broader policy community about events and trends in those societies which
are strategically or tactically important to the United States and which frequently restrict
access to such information. Utilizing indigenous and primary sources, Jamestown’s material
is delivered without political bias, filter, or agenda. It is often the only source of
information that should be, but is not always, available through official or intelligence
channels, especially in regard to Eurasia and terrorism.
The opinions expressed in our Occasional Papers are solely those of the author’s and do
not necessarily reflect the views of The Jamestown Foundation.
Information on The Jamestown Foundation’s programs and publications are available on the world
wide web at:
http://www.jamestown.org
For comments or questions, please send an email to pubs@jamestown.org.
1111 16th St. NW•Suite 320•Washington, DC 20036
Mounir Elkhamri
THE JAMESTOWN FOUNDATION
3
I. IRAN’S PREPARATIONS FOR THE U.S. INVASION OF IRAQ
The Badr Corps’ Leaders Meetings with Allies
According to captured Iraqi intelligence reports (2001-2002), there were several meetings between the
command of the Badr Corps of the Iranian Republican Guard and Iraqi Shia tribes. The Badr Corps also
met with the Patriotic Union of Kurdistan (PUK) and the Kurdistan Democratic Party (KDP) leadership in
preparation for the U.S. invasion of Iraq.
On September 27, 2001, representatives of the Badr Corps met with members of the PUK, including PUK
leader Jalal Talabani, in one of the PUK’s political offices in Sulaymania, Kurdistan. During this meeting,
the Badr leadership discussed possible enrollment of Badr Corps members and other Iraqis living in Iran in
the University of Sulaymania. They also requested permission from Jalal Talabani to invest in Sulaymania.
Talabani agreed to study their request for student enrollment and gave them the green light to invest in
Sulaymania.1
Then, on October 1, 2001, representatives of the Badr Corps and representatives of the KDP, which is led
by Massoud Barzani, met in a Salahadeen resort located about 20 miles from Irbil, Kurdistan. The intent of
the meeting was to renew and reinforce the Badr Corps’ ties with the KDP. During this meeting, Badr Corps
leaders also asked the KDP representatives about the United States’ current and future intentions toward
Iraq.2
On October 2, 2001, the Badr Corps leadership met again with Massoud Barzani, head of the KDP,
to discuss different ways to reinforce relations between the Badr Corps and the KDP. The Badr Corps’
representatives inquired about U.S. intentions in Iraq and asked Barzani’s permission to allow the Badr Corps
to open an office in Irbil. Barzani assured them that the United States was thinking about targeting Iraq once
it finished its mission in Afghanistan. He expressed his worries about the possible involvement of the Turkish
forces in the U.S. invasion, especially since Turkey had strong interests in northern Iraq. He also mentioned
that normally the United States would only support the strongest political parties that were pro-U.S. These
parties would assume control in post-Saddam Iraq. At that point, the majority of U.S. politicians supported
the Kurds and the Shia Supreme Council for the Islamic Revolution in Iraq (SCIRI).3
The Badr Corps’ Military Meetings and Preparations
On November 4, 2001, the Badr Corps organized a meeting with the chief of staff, operations officer,
intelligence officer and numerous tribal leaders who were loyal to the Badr Corps. During this meeting, the
Badr Corps leadership emphasized the importance of jihadi activities in support of the Badr Corps’ efforts to
seize the Iraqi government once the United States
invaded Iraq.4
A day later, the leadership of the Badr Corps
held another meeting attended by Abu Mehdi
Mohandess, the Corps commander’s assistant;
Abu Hassan al-Amari, the chief of staff; Abu
Lequaa al-Safi the intelligence officer; Abu Ayoub
al-Basri, the operations officer; and all the covert
area commanders in Iraq.
“Today, Iran considers Iraq as
its frontline state against the
United States and its allies,
especially if the United States
decides to attack Iran’s nuclear
installations.”
IRAN AND IRAQ: Iran’s Contribution to the Civil War in Iraq
THE JAMESTOWN FOUNDATION
4
During this meeting, they discussed the following scenarios in Iraq:
1. The possibility of transferring command between President Saddam Hussein and his son Udai.
2. The possibility of changing the key political figures in Iraq but keeping the same political structure.
3. The possibility of an organized military coup by a group of officers supported by the United States.
4. The conference noted that the United States might intervene in Iraq as they had in Afghanistan. In
this case, the United States would likely rely on Kurdish forces and other Iraqi Islamic forces in theater.5
On December 10, 2001, the Badr Corps organized a meeting in which the majority of its commanders—
Abu Hassan al-Amari, the chief of staff; Abu Lequaa al-Safi, the intelligence officer; Abu Ayoub al-Basri the
operations officer—and representatives from the Iraqi province of Karbala were present. During the meeting,
they discussed the probable U.S. invasion of Iraq and discussed the Corps’ plan and preparations to reap the
benefits from this opportunity.6
SCIRI asked the Badr Corps command to:
1. Prepare for and anticipate the beneficial U.S. invasion of Iraq. Provide the necessary and effective
action to support the U.S. attack on Iraq.
2. Conduct reconnaissance missions, then disrupt and cause damage to the Iraqi military in the south,
especially in the provinces of Basra, Maysan and Dhi Qar because that would raise the Badr Corps
soldiers’ morale and spirit.
3. Prepare two battalions of the Badr Corps, the Mujahedee al-Hussein battalion and the Ansar al-
Hussein battalion, and send them into the south of Iraq, in the areas of al-Amarah and al-Nasseria.
They must collect information about military units and government officials and carry out attacks on
political parties’ offices and other government offices. Then they must control the main route between
the Dewania and al-Kassem areas, which is located in Babil province, right after the U.S. invasion of
Iraq.
These forces were under the supervision of an Iranian intelligence general, General Mhamde, who secretly
traveled in and out of Iraq and had a business office in Sulaymania (Hassaniat al-Hakim). Later, General
Mhamde prepared a group of Kurds and integrated them into two platoons called Alkassem in order to
collect information about Ninewa and Tamim provinces.7
II. IRAN’S PRESENCE IN IRAQ AFTER THE U.S. INVASION
Iraq as a Strategic Line of Defense for Iran
Iraq is considered to be the first line of defense for Iran against any foreign invasion, especially since Iraq
has been the invasion route for military attacks on Iran in the past. Prior to and after the coalition’s invasion
of Iraq, Iran has been taking the necessary preparations and actions in order to strengthen its strategic
position and control Iraq through its intelligence organization and its sectarian political parties.
These organizations and political parties used the coalition’s initial position against the Sunnis and the
de-Baathification of the Iraqi security forces to infiltrate, manipulate and control the new Iraqi security
forces and ministries. Today, Iran considers Iraq as its frontline state against the United States and its allies,
especially if the United States decides to attack Iran’s nuclear installations.8
Mounir Elkhamri
THE JAMESTOWN FOUNDATION
5
Different Forms of the Iranian Presence in Iraq
In 2004, the assistant commander of the Iranian Republican Guard announced, during his visit to London,
that Iran has two brigades and other militia in Iraq in order to protect the national security of Iran.
On March 11, 2004, Iranian intelligence opened an office in Najaf called “The Office to Help Poor Iraqi
Shia.” Through that office, they were able to recruit over 70,000 Iraqis from the south to join one of the
militias loyal to Iran. Every recruit would receive $2,000 in advance, then $1,000 a month—a princely sum
in Iraq today.9
According to a defecting Iranian Republican Guard Council (IRGC) officer, “The scale and breadth of
Qods Force operations in Iraq are far beyond what we did even during the war with Saddam.”10 The officer
was referring to the IRGC’s extensive
activities in Iraq during the eight-year
Iran-Iraq War of the 1980s. “Vast areas
of Iraq are under the virtual control of the
Qods Force through its Iraqi surrogates. It
uses a vast array of charities, companies
and other fronts to conduct its activities
across Iraq.”11 He also stated, “We would
send our officers into Iraq to operate for
months under the cover of a construction
company...Kawthar Company operated in
Najaf last year to carry out construction work in the area around Imam Ali Shrine, but it was in fact a front
company for the Qods Force. Qods officers, disguised as company employees, established contacts with Iraqi
operatives and organized underground cells in southern Iraq.”12
Iran’s Ideological Control over Southern Iraq
In the past two years, Iran has sent more than 2,000 students and religious scholars to Najaf and Karbala.
About one-third of them belong to Iranian intelligence. It has also assigned representatives in major Shia
cities to provide financial support to Shia students and school instructors—$50 to $100 per student and
$200 to $500 per instructor. Iran has sent several Iraqi political figures who were living in Iran back to Iraq
to infiltrate and obtain sensitive political positions in the new Iraqi government. Iran considers these figures
a solid foundation in the process of incorporating Iraq, without its northern area of Kurdistan, the moment
the coalition forces start leaving Iraq.13
Iran has a strong presence in the southern provinces of Iraq and a secret one in Baghdad. Iran also has
a respectable presence in the north of Iraq where it is utilizing Iranian Kurds, Iranian communists, Iranian-
Kurdish student exchanges and Iranian agents. There were numerous agreements between the Iraqi-Kurdish
leaders and Iran prior to the coalition’s invasion of Iraq.
In one of the agreements, Iran agreed not to intervene in Kurdistan’s internal affairs or to go after the
Iranian-Kurds who live in Kurdistan and are anti-Iran. In exchange, the Kurdistan government agreed to not
allow any attacks on Iran from Kurdistan.14
Assassination of Scientists, Professors, Officers and Key Sunni Figures
After the fall of the regime, Iraqi citizens began to witness numerous assassinations and kidnapping
attempts that targeted Sunni professors, scholars, doctors and especially those army officers and air force
pilots that participated in the Iraq-Iran war. According to an ex-Iraqi Air Force pilot who is currently serving
“When the Shia in the south of Iraq, who
are loyal to Iran, claim their independence
in Iraq’s southern provinces, they will
control the second largest oil reserve after
Saudi Arabia. Iran might eventually end up
in control of almost 20% of the world’s oil
reserves.”
IRAN AND IRAQ: Iran’s Contribution to the Civil War in Iraq
THE JAMESTOWN FOUNDATION
6
in the new Iraqi army, when the coalition forces were busy fighting the insurgency and preparing for the first
national election, the Iranian militias were busy assassinating over 90 air force pilots and other high ranking
military officers that had participated in the Iraq-Iran war.15
In late 2005, Iraqi President Jalal Talabani condemned the assassinations and kidnapping attempts and
sent an invitation to the rest of the former Iraqi Air Force pilots and high ranking officers to move to
Sulaymania or Irbil in Kurdistan if they did not feel safe where they lived.
Iran’s Control of Southern Iraq
According to an Iraqi officer, during al-Jaafari’s administration numerous members of the Iranian
intelligence were naturalized in Iraq and thousands of hectares were distributed in Shia cities such as Basra,
Najaf and Karbala. In 2004, al-Alkeed Ghazi, an Arab-Shia naturalization officer, was assassinated because
he refused to naturalize anyone that belonged to a militia. Iran also sent Iranian investors along with its
intelligence officers in order to buy as many as 5,000 apartments, houses, stores and restaurants in Baghdad,
Basra, Najaf and Karbala. These are used as living quarters and command centers for the Iranian agents and
the other militia loyal to Iran.
These ongoing efforts are mainly to guarantee a successful vote for federalism in the south of Iraq. Similar
scenarios were witnessed in the north of Iraq before the first and the second national elections, where a large
number of Kurdish families relocated from Kurdistan to a different area north of Iraq—Mosul, Tal Afar,
Rabia and others—in order to secure enough votes for the new Iraqi constitution and the national election.
Iranian Involvement in Iraq’s Election and its Aftermath
Prior to the 2005 Iraqi national election, Iran sent a large number of its agents as visitors to Shia shrines
in order to influence and secure the necessary votes for the Shia party running in that election. They smuggled
in thousands of Iranian-made pictures, flyers and already filled-out voting ballots in order to support their
Shia candidates. The Shia United Iraqi Alliance consisted of 18 conservative Shia Islamist groups such as: the
Dawa party, led by ex-Prime Minister Ibrahim al-Jaafari; the pro-Iranian Supreme Council for the Islamic
Revolution in Iraq, led by Abdul-Aziz al-Hakim; the Iraqi Nationalist Sadr Movement, loyal to populist Shia
cleric Moqtada al-Sadr; and others.16
According to the Iranian ambassador to the United Kingdom, Muhammad Husain Adeli, Tehran was
ready to work again with the United States to ensure stability in the Middle East where their interests
converged. Ambassador Adeli stated, “For the recent elections, there was not only implicit but explicit
indirect and direct cooperation between the two, Iran and the United States, in order to keep the majority
calm and in favor of the election.”17 Tehran and Washington have not had diplomatic links since the 1979
Islamic Revolution and relations between them are currently tense.
Federalism
On July 31, 2006, Adel Abd al-Mahdi, a senior official in SCIRI and Iraq’s vice president, pledged that
the Shia Iraqi coalition—the biggest bloc in the Iraqi parliament—would raise the issue of a Shia federal
state in the coming month. A few days before that announcement, Abdul Aziz al-Hakim, chairman of SCIRI,
repeated his call for a Shia federal region.18
The chairman of SCIRI also stated, “Federalism is constitutionally secured. We have to work seriously
on this issue, and figure out the necessary mechanism to switch to federalism. Dear countrymen, this issue is
important to your governorates’ security, safety and reconstruction.”19
Mounir Elkhamri
THE JAMESTOWN FOUNDATION
7
He continued and urged his supporters to take the Kurds in the north of Iraq as an example of the
importance of federalism: “Kurdistan was devastated by wars and suffered the same amount of negligence
you suffered, but now—thanks to federalism—it has started to enjoy progress and prosperity more than any
part of Iraq.”20
Iraqi federalism is an important issue for Iran. When the Shia in the south of Iraq, who are loyal to Iran,
claim their independence in Iraq’s southern provinces, they will control the second largest oil reserve after
Saudi Arabia. Iran might eventually end up in control of almost 20% of the world’s oil reserves.
III. IRAQ’S CIVIL WAR
Today in Iraq, Shia militias—death squads loyal to Iran—have successfully infiltrated the new Iraqi
security forces at all levels. They have also expanded their area of operations throughout Iraq. They are
responsible for more civilian deaths than the Sunni and foreign insurgents who are the United States’ number
one enemies in Iraq. These militias—the Mahdi Army, the Badr Brigade and others—are carrying out attacks
under the authority of and in the uniforms of the Iraqi Ministry of the Interior and the Ministry of Defense.
They arrest, kidnap, interrogate, torture and kill anti-Shia and innocent Iraqis.21
For the past year, dozens of corpses have shown up on the streets and garbage dumps of Iraqi cities on a
daily basis. In most cases, the victims, who are overwhelmingly Sunni, are blindfolded and handcuffed. Their
corpses show signs of torture—broken skulls, burn marks, gouged-out eyeballs, electric drill holes and other
forms of abuse. The Shia militias’ secret detention centers are popping up everywhere, even within the Iraqi
Ministry of Interior.
The reality is that Iraq is in a state of civil war, and some of its most ruthless and lawless combatants
are members of the government’s own security units. Unfortunately, some of them, if not the majority of
these new Shia militias, were once part of the new Iraqi security forces and were trained by coalition forces.
Coalition forces have spent billions of dollars in training, thinking that these recruits would serve the Iraqis
and would be loyal to Iraq instead of following the Iraqi and Iranian religious leaders’ political agendas.22
The current situation in Iraq cannot be fixed by military “hit and run,” moving troops from one hot
spot to another. The militias enjoy Iranian military, financial and spiritual leadership. On the other hand,
the solution is not to bomb Iran, as doing so will only unleash Iranian forces around the world against
neighboring Arab lands where the United States has a presence. What the United States needs to do is to
restrain Iran and disarm and disband the Shia militias. These militias are out of control. America must keep
Iraq together. It is America’s responsibility to restore order to avoid a civil war that would be similar to the
Lebanese Civil War in the 1980s.
IRAN AND IRAQ: Iran’s Contribution to the Civil War in Iraq
THE JAMESTOWN FOUNDATION
8
ENDNOTES
1 Abedin, Mahan, “The Supreme Council for the Islamic Revolution in Iraq (SCIRI),” Middle East Intelligence
Bulletin, October 2003.
2 Ibid.
3 “The Iraqi Intelligence Reports on the Iranian Intelligence Activities,” captured Iraqi intelligence records
maintained by FMSO, April 18, 2006.
4 Ibid.
5 Ibid.
6 Ibid.
7 Ibid.
8 Ibid.
9 Ibid.
10 The Qods Force is an extra-territorial arm of the Iranian Islamic Revolutionary Guard Corps.
11 “Terrorists Training Camp in Iran,” Iran Focus, February 27, 2006.
12 Ibid.
13 Ibid.
14 Ibid.
15 Dr. Mohamed Ayach Alkabessee, “The Iranian Role in Iraq after the Occupation,” http://www.iraq-amsi.
org, March 19, 2006.
16 “Iran Sets up New Terror Camp in Eastern Iraq,” Iran Focus, April 16, 2006.
17 http://www.iraq-amsi.org.
18 “Iraq Elections: Parties to Watch,” al-Jazeera, December 13, 2005.
19 “Iraqi official calls for Shia region,” al-Jazeera, August 4, 2006.
20 Ibid.
21 Ibid.
22 http://www.iraqirabita.org.

Russia Wary of China's Anti-Satellite Capabilities Drafted By: http://www.pinr.com

China's recently acquired ability to disable space-based satellites received due attention by practically every major power around the world. Much of the analysis surrounding the January 11 test has centered on the threat that this capability poses for the United States. Clearly, the U.S. position in space has been somewhat compromised by the Chinese since more than half of all artificial satellites in Earth's orbit are American, and Washington stands most to lose if China expands its space capabilities. In reality, however, China has a long way to go before it can openly and directly challenge U.S. dominance in space. Research and development, manufacturing, testing and fielding of any future Chinese anti-satellite system will be answered by the United States and its allies. At the moment, the United States has both the funds and the abilities to field extensive counter-measures to Chinese space advances, a cost many other countries would find prohibitive.Lost in the chorus of analysis is how Russia likely perceives the Chinese test. Although Russia has been mentioned by most analysts as one of the concerned states, nearly every assessment has centered on the United States. Clearly, it is not popular today to argue that Russia considers China a potential threat. Numerous official visits and even joint Sino-Russian military exercises seem to underscore the developing relationship between China and Russia. Both Russian President Vladimir Putin and Chinese President Hu Jintao take every opportunity to underscore the "friendship and cooperation" between the two states in trade, military ties and diplomacy. Still, China's sudden breakthrough in space and anti-satellite technology did not go unnoticed in Moscow.First, Russia has many of its military, intelligence and even communication satellites in low Earth orbit, somewhere between 320 to 804 kilometers (200 to 500 miles) above ground. Such distance puts them within easy reach of China's new capabilities. Beijing, for example, destroyed its aging satellite at approximately 865 kilometers (537 miles) above ground. While Russia has advocated many changes to its military doctrine -- including greater funding for its high-tech military assets -- it still operates many satellites that have been put into orbit toward the end of the Soviet Union or just after its break-up. Russia relies on these "eyes and ears" in the sky for its security. Nowhere is that more relevant than on the huge open spaces of Siberia and the Far East -- the massive territory east of the Ural mountains. Russia's sparse population in that region, the need to monitor the borders, and the existence of high-profile military and R&D assets in Russia's eastern territory necessitates constant surveillance and observation. The recent economic development of the region -- oil and natural gas exploration and the importance Moscow now attaches to such industries -- makes it ever more necessary to keep an eye on this expanse.China's recent interests in the Russian Far East and the constant debate about Chinese cross-border immigration to that region add to the importance of constant observation of vast open spaces that hold huge quantities of much-coveted natural resources. If Moscow's ability to observe and monitor even a part of that region were to be degraded to any degree, it would be at a disadvantage in its ability to see what takes place on the ground. Lack of roads and railroads and degraded infrastructure already make any official Russian response to a military or a humanitarian emergency there difficult. If Moscow went "blind" suddenly in huge portions of its eastern territories, there is no sure way to predict its response. Second, and perhaps more important, is Russia's realization that there is now one less advantage it holds over China. When the Soviet Union fell apart in 1991, Russia inherited a huge arsenal of state-of-the-art weaponry and manufacturing capabilities, practically on par with the United States. At the time, China had only begun its crash program to upgrade its military, which was still armed according to 1960s and 1970s standards. Since that time, the overall state of the Russian military has eroded, notwithstanding some of its weapon development programs. Its best creations are not fielded in proper quantities in its military services. Such key assets as the Su-37, the MiG Multirole Front-Line Fighter, Ka-50, Ka-52 and Mi-28 helicopters, T-90 battle tanks, as well as armored vehicles, on board electronics and computer systems are fielded in very small quantities with few select services, or still exist as manufacture-ready prototypes that need to be put in production. Notwithstanding Russia's robust global weapons trade, much of what it sells dates to the late 1980s, just before the end of the Cold War. Its latest developments that can match the best of the West still await proper funding and oversight. China's military is still behind Russia's in many respects, but it is catching up. One area where Russia has been able to maintain a lead over China has been in its ballistic forces. Now, with China's recent test, the gap has narrowed even further. Beijing has joined an elite, high-tech club consisting only of the United States and Russia. Furthermore, while Russia is happy to sell military hardware to China, there is a clear line that Moscow will not cross with its neighbor. Moscow's military leadership stated on a number of occasions that Russia will not supply its latest high-tech weapons to China for security reasons, even if the price is right. There is a growing level of discomfort in Moscow with China's rapid ascent. Now, China can potentially threaten one Russian asset that still gives it enormous strength and confidence -- its space-based assets.Despite the recent improvement in relations between Russia and China, the Kremlin is getting both apprehensive and uncomfortable with its growing role as a staple supplier to China's growing economic miracle. Ballistic and space-based technology was, until this week, one area where Russia still felt like a superpower when compared to China. That crucial advantage has now been eroded significantly. It is prudent to watch Moscow's political and military reaction to China's test since Beijing's actions have narrowed an ever-closing gap between the two neighbors, raising new questions about the future and progress of Sino-Russian relations. The time when China can overtake Russia militarily is approaching. It has already done so economically, and is steadily gaining on Russia politically with its powerful diplomatic drive buttressed with trade incentives. How Russia will react to China's continued drive for high-tech military dominance will have a powerful and lasting effect on the future of international relations.

KREMLIN STRATEGY TARGETS WESTERN ENERGY ASSETS IN RUSSIA, WESTERN SUPPLY SOURCES IN THIRD COUNTRIESOn January 21 in Sochi, Russian President Vladimir Putin assured a skeptical Angela Merkel -- visiting in a triple capacity as German Chancellor, holder of the European Union presidency, and incoming G-8 chair -- about Russia’s purported reliability as an energy partner to the West. The relevant actions, however, unfolded not in Sochi, but rather in Siberia and in Algiers, continuing Moscow’s three-pronged offensive against Western energy interests. The three tracks are: forced takeovers of Western investment projects in Russia, aggressive inroads into the West’s traditional supply sources in third countries, and acquisition of infrastructure within the West itself.The forced-takeover pattern, inaugurated in the case of Yukos and continued in a somewhat different form with Royal Dutch Shell last month, is set to continue at an accelerated rate. On January 19, Nature Inspectorate Deputy Chief Oleg Mitvol warned the BP-TNK joint venture that it faces environmental and legal investigations possibly as early as March at its giant Kovytka gas project. Russian government agencies had warned BP-TNK already in September that it might face billions of dollars worth of fines or license revocation for alleged environmental violations at Kovytka, even as the project reached the initial production stage. Mitvol’s latest warning, moreover, cites financial inspectors’ claims that the project is lagging behind the 9 billion cubic meters annual production target, thereby also falling short in its purported obligations to Russia’s state budget.Putin had personally blessed this BP-TNK project in 2003 -- a move that these and other investors in Russia deemed as amounting to a political guarantee. In recent months, however, Gazprom has openly indicated its intention to take over a majority stake in this project with the Kremlin’s help. Mitvol is the same official whom the Kremlin had unleashed against Shell in the final months of 2006, forcing the Shell-led consortium in December to hand over a 50% stake in its Sakhalin-2 project to Gazprom.On January 22, Russian Audit Chamber head Sergei Stepashin announced that his agency evaluated “damages to our country” in that project at $5 billion. Stepashin’s figure seems neatly to coincide with the difference between the $7.5 billion paid by Gazprom for that 50% stake and the $12 billion estimated market value of that stake. Stepashin claims credit for his agency in “significantly influencing that decision” through its audit, as part of what he now terms a “massive attack” together with the Nature Inspectorate and the Prosecutor General’s Office (RIA-Novosti, January 22).Stepashin also announced on January 22 that the Audit Chamber has “uncovered significant environmental violations” by the French-Norwegian consortium at the Kharyaga giant oil field in western Siberia. Echoing the case against BP-TNK, Stepashin also claims that the consortium is lagging behind the production schedule and short-changing the state and local budgets. Total of France and Norsk Hydro of Norway are developing the Kharyaga field under a production sharing agreement signed in 1995 for a 29-year period. The two companies hold stakes of 50% and 40%, respectively, with the local Nenetsk Oil Company holding 10%.In unison with the Kremlin’s general argument, Stepashin openly claims that the Kharyaga and other production-sharing agreements were signed at a time when Russia’s economic and political situation was unfavorable and that it is therefore time to change those contracts. Western companies seem resigned to accept this Russian view of the sanctity of contracts, apparently hoping to limit the impending losses and continue operations on the new terms.On January 16, Putin chaired a government session that decided to divide up Russia’s oil and gas deposits on the continental shelf evenly among the state-controlled Rosneft and Gazprom. The move implies an accelerating concentration of Russia’s oil and gas sector directly into Kremlin hands as well as reducing Western companies to minority roles at best in any offshore projects from now on (Vedomosti, January 21).Russia’s Industry and Energy Minister Viktor Khristenko, accompanied by top executives from Gazprom, Rosneft, and Lukoil, visited Algeria on January 19-22. They discussed new oil and gas field development projects by the Russian companies in Algeria, specifically the 245-South fields, under a production-sharing agreement signed by Rosneft’s subsidiary StroyTransGaz with Algeria’s state company Sonatrach. Gazprom, lacking the technology for production of liquefied natural gas (LNG), is inviting Sonatrach, which has assimilated the relevant French technology, to participate in the construction of a LNG plant in the Leningrad oblast.Moreover, Gazprom seeks to enlist Sonatrach, first, in joint marketing of gas in Europe; and, second, in what it terms “coordination of their positions in the Forum of Gas-Exporting Countries” (Interfax, January 22), hinting at the potential formation of a Russian-Algerian or perhaps wider cartel. Algeria holds an estimated 10% share of the European Union’s overall gas market. Russia and Algeria could hold 40% between them if the bilateral “coordination” becomes a fact.Meanwhile, Gazprom holds some hope to replace the ConocoPhillips and Anadarco companies in Algeria, in the event that the nationalization process currently underway in that country adversely affects those two U.S. companies.(Interfax, Itar-Tass, RIA-Novosti, January 19-22; see EDM, December 13, 15, 2006)
--Vladimir Socor