Toronto, ON, Canada, — The rapid increase in oil prices and the rise in metal and mineral demand worldwide have made the Russians overconfident. Their annual cash income in the last four years has grown fourfold. The economic crunch of the 1990s is behind them. Thus the Russians have become somewhat politically belligerent, visible in the opposition they have mounted against the building of U.S. radar sites in Eastern Europe.
Only a year ago Russia blocked supplies of oil and gas to Ukraine over price disputes. Ukraine had been accustomed to paying next to nothing for oil and gas under the old Soviet Union, and the new price structure horrified them. Russia stuck to the new price and Ukraine had no choice but to pay more, although in gradual increments. In this dispute, Russia was correct; the Ukrainians simply had not adjusted to the new world order.
Another notable dispute has been Russia’s arm-twisting of Central Asian nations for all their oil and gas. Since these landlocked nations have no other outlet to get their products to the outside world, they have agreed. Russia intends to market the oil and gas in Western Europe at a much higher price.
For Russians, the U.S. presence in the oil industries of Kazakhstan and Turkmenistan is an unwelcome interference in the Russian sphere of influence. Only recently a new pipeline through Turkey has begun taking oil to the rest of the world without Russian involvement. Other pipelines, possibly through Iran to the Indian Ocean, and a separate pipeline to central China, could break this logjam.
Then there are disputes over Russian arms supplies and technology transfers to India, China, and other smaller nations. The modus operandi in these disputes is the same: the Russians will renege on a previously negotiated contract, initially blaming delays on factory overload, and later demanding a much higher price. Supplies are not delivered until extra money is paid.
The Indians have been taken for a ride in the supply and refurbishing of the aircraft carrier Gorskhov and hardware associated with it. Other military hardware on order – Smerch rocket launchers, T-90 tanks, destroyer upgrades, a promised supply of unfinished Akula nuclear submarines for training purposes and AL-551 jet engines – have been delayed due to price disputes of one kind or another.
The Chinese have fared no better. To modernize their armed forces, the Chinese imported US$26 billion dollars worth of military hardware and technology from Russia between 1996 and 2006. Disputes have been innumerable. The Russians have not allowed the Chinese to export Russian-supplied engines in their newer fighter planes to Pakistan, and they have also refused to supply IL-76 planes to the Chinese military. They are also fuming that the Chinese copied their SU-27 fighter technology without permission. The list goes on and on.
Why is Russia breaking all its deals? It has become policy in Russia to break any deal found unsatisfactory, regardless of consequences. The Russians have internally concluded that previous Soviet arms customers must return to them for spares and upgrades; hence their obtuse behavior. China has no hope of obtaining military supplies from the West and hence returns to them for advanced weapons supplies. India finds the West’s supplies too expensive and therefore is a repeat customer.
A Western diplomat observed a year ago, “The Soviets were easier to deal with than today’s Russia.” Today Russia blocks every deal it finds not serving its best interest. Former Russian President Vladimir Putin has decided to undo everything the previous leader, in his drunken state and during all-around anarchy, may have given away cheap.
Russia has been telling all the previous satellite states of the Soviet Union in Eastern Europe to pay up or lose. Gas supplies have been the chief weapon in the Russian arsenal. To maximize the impact, all unpleasant discussions and supply interruptions are usually undertaken during the winter months, giving the Russians an upper hand in negotiations. So far they have been successful.
With the West Putin has a special bone to pick. He speaks softly, but carries a big stick. He has served very clear notice to the West that the breakup of Yugoslavia was its last political act in Europe, and has told it to stay clear of Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine. It seems that the West is listening. Western military expansion in Eastern Europe has slowed down and the issue of Chechnya has been forgotten.
Former President Putin, now prime minister, has deliberately put hurdles in all arms deals with India. He was in power in 2003 when the deal for the Gorskhov was negotiated. At that time, the oil price bonanza had not begun. Today he wants India to pay at least US$1.2 billion more, on top of the $1.5 billion deal that was agreed upon five years ago.
Now India is in a fix: to pay or not to pay. Its choices are limited. The United States can offer a retiring U.S. aircraft carrier to India, but a host of other needed hardware will make the deal more expensive. Also, future spare parts and technology transfer agreements that India has with Russia will be in jeopardy.
China is also no friend of Russia. The two were enemies for 400 years during the Tatar’s yoke on the Russians. Their alliance during the decade from 1950 to 1960 broke up in a shooting war along the Ussiri River that separates them. Each side had nuclear weapons aiming at the other until 1990. After the fall of the Soviet Union, China, unable to find technology elsewhere, decided to buy it inexpensively from Russia from 1996 onwards.
In the last five years Putin has been unrelenting in his pursuit for a fair deal for the Russians. He asked the Chinese to explain their copying of Russian hardware without paying royalties. The Chinese, unable to explain, reduced purchases from 2006 onwards.
Russia is not selling weapons in many other places. Its smaller customers like Indonesia, Libya and Algeria can only spend an occasional few billion, and are always looking for greater value for their money. If Russia loses its big markets like India and China, its factories will go idle. This should prompt the Russians to act a bit more wisely – yet it appears they have thrown caution to the wind.
Adjusting to these new circumstances, India has become a major customer of Israel for new arms, while China is busy buying or stealing military technology all over the world to supplement its own. Sooner or later, the Russians will find themselves in a logjam of reduced exports. They would be wise not to upset established customers.
In summary, the Russians may behave obtusely, but it is politically and commercially unwise to renege on previously negotiated deals. Sooner or later the customers will stand up for their rights. A customer once gone is gone permanently, and a lost customer is bad for any economy.
(Hari Sud is a retired vice president of C-I-L Inc., a former investment strategies analyst and international relations manager. A graduate of Punjab University and the University of Missouri, he has lived in Canada for the past 34 years. ©Copyright Hari Sud.)
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