Monthly Archives: February 2013

Zero Dark Thirty

Kathryn Bigelow’s film Zero Dark Thirty tells the story of the successful US attempt to find and kill Osama bin Laden; I am using the most common spelling of his first name, but there are different ways of transliterating Arabic names into English. The US intelligence services called him Usama bin Laden or Ladin , and he is referred to as UBL throughout the film.

The film starts with the last messages left by some of the victims of 9/11. It then shows the CIA’s attempts to track down bin Laden, culminating in his death at the hands of US Navy SEALs at Abbotabad on 2 May 2011.

The main protagonist is Maya (Jessica Chastain), a CIA analyst who is obsessed with the hunt for bin Laden. She is a fictional character, although it is unclear whether she is based on a single CIA agent, as The New York Review of Books states, or is a composite of several, as the makers of Manhunt, a documentary treatment of the story, claim.

Unlike many fictional characters with an obsession (eg Agent Mulder in The X-Files), Maya does not appear to have a personal stake in the case. Rather, she appears to be simply utterly absorbed in her job, which is to find bin Laden. She does not seem to have any life outside of her work. Even Carrie Mathison, the obsessive and bi-polar CIA agent from the TV series Homeland, with whom Maya has been compared,  visited her father, sister and nieces and had a sex life.

Zero Dark Thirty is an entertaining film, which deserved its five Oscar nominations, including Best Picture and Best Actress for Chastain, but it was fair that even better films and performances beat it in these categories, leaving it with only a joint win for Sound Editing.

The film has caused a number of controversies. It begins with one: the film-makers did not ask permission from the families of the dead to use the recordings of the last phone calls made by victims of 9/11 that are played over the opening credits.

Another is that shows the CIA obtaining vital information from torture. It has been claimed, most notably in a letter from Senators Dianne Feinstein (D-Calif.), Carl Levin (D-Mich.) and John McCain (R-Ariz.), that this intelligence actually came from other sources. Sen. McCain, captured in the Vietnam War, can give advocates of the use of torture the unanswerable reply that it did not work on him.

Michael Morell, the Acting CIA Director, distanced his agency from claims that it had co-operated closely with the film-makers in a statement that said that:

Zero Dark Thirty is a dramatization, not a realistic portrayal of the facts. CIA interacted with the filmmakers through our Office of Public Affairs but, as is true with any entertainment project with which we interact, we do not control the final product.

The Senate Intelligence Committee has just decided to drop its inquiry into how much help the CIA gave the film-makers.

The release of the film was delayed until after the US Presidential Election because it was feared that it might boost support for President Obama, since he ordered the mission that killed bin Laden. However, the film asserted that waterboarding, introduced by the Bush Administration, but banned by Obama, was a key element in finding bin Laden’s whereabouts.

Neither President nor any members of their Cabinets are portrayed by an actor in the film. The most senior officials to appear are the CIA Director (James Gandolfini) and the National Security Adviser (Stephen Dillane). Each is described by his job title rather than name in the film; the incumbents were Leon Panetta and Tom Donilon.

Overall, this is a good film, but it is marred by the rudeness shown to the families of the 9/11 victims whose last messages are broadcast without permission, and by its ambiguous attitude to torture. Not showing it would have been a whitewash, but the film shows it producing useful intelligence. The Guardian quotes Bigelow as telling the New York Film Critics Circle, who had just given her their Best Director award that:

I thankfully want to say that I’m standing in a room of people who understand that depiction is not endorsement, and if it was, no artist could ever portray inhumane practices; no author could ever write about them; and no film-maker could ever delve into the knotty subjects of our time.

The trouble is that the difference between depiction and endorsement will be lost on some, who will see torture producing the evidence that led the good guys to get the bad guy, when in reality it did not.

Incidentally, the zero dark is US military code for midnight, so zero dark thirty means 0030 am, the time at which the SEALs attacked bin Laden’s compound.

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Argo: The Truth

Argo, directed by and starring Ben Affleck, was voted best picture at this year’s Oscars. It tells the story of how Tony Mendez (Affleck), a CIA agent succeeded in helping six US diplomats to escape from Tehran in 1980. As a film, it is excellent, and well deserved its Oscar. However, it is a fictionalised account of real events. How accurate is it as a record of history? This is important because many more people will see the film than will read a book on the subject.

On 4 November 1979 supporters of Ayatollah Khomeini’s Islamic government seized the US embassy in Tehran. Most of the diplomats were taken hostage. Some African-Americans and women were soon released, but most were held captive until January 1980. Six, however, were able to escape; they worked in the consular section which had its own street entrance and exit because it dealt with members of the public. They were Robert Anders, Mark Lijek, Cora Lijek, Henry Schatz, Joseph Stafford and Kathleen Stafford.

The film shows the six taking refuge at the home of Ken Taylor, the Canadian ambassador. There, they were in constant danger of discovery, which would also put Taylor and his wife at risk of arrest. The Canadian embassy was to be closed in late January, with Taylor and his staff leaving Iran.

Mendez comes up with a plan to get them out of Iran by pretending that they are scouting team looking for locations for a proposed science fiction film called Argo. Parts of Star Wars were filmed in Tunisia, so it was plausible that Hollywood might want to make a science fiction film in Iran.

The six diplomats and Mendez left on a Swissair flight on 28 January 1980, the same day that the Canadian embassy closed. The actual escape was more straight forward and less tense than the film’s version.

At the time, the Canadians were given most of the credit; the CIA’s involvement was not revealed until 1997. The film suggests that the CIA was the main player in getting the diplomats out, but Ken Taylor recently told the Toronto Star, that ‘Canada was not merely standing around watching events take place. The CIA was a junior partner.’

The film omits the role of another Canadian diplomat, John Sheardown, who put up some of the Americans. It also says little about Taylor’s significant role in gathering intelligence about potential escape routes.

A radio programme in the BBC World Service’s Outlook series interviewed Mark Lijek and his wife Cora, two of the US diplomats, and Zena Sheardown, John’s widow.

A further controversy results from a line in the film about the Americans being turned away by the British and New Zealanders. In fact, five of them tried initially to go to the British embassy, but it was surrounded by demonstrators. They spent one night at the flat of the most senior of their group, Richard Anders. The sixth went to the Swedish embassy at first, but later joined the others.

According to the London Sunday Times (no link due to paywall), Bruce Laingen, the US charge d’affaires, who was at the Iranian Foreign Ministry, contacted the British embassy the next day to ask them to find and look after his colleagues. Two British diplomats, Martin Williams and Gordon Pirie, took them to a compound inhabited by British diplomats in the northern suburb of Gholhak.

Iranian militants turned at the compound, but were turned away by the chief guard, Iskander Khan, a former Pakistani soldier. He had been a chauffeur at the 1943 Tehran conference between Churchill, Roosevelt and Stalin. Because of this, the British moved the Americans first to the house of a US diplomat’s Thai cook , and then to Taylor and Sheardown’s houses. The New Zealanders helped to provide the Americans with food and entertainment.

The BBC interview linked above, however, does not mention this and suggests that the diplomats remained at Anders’s hounse until 8 November, when they contacted the Canadians.

The Sunday Times quoted Affleck as telling a  New Zealand magazine that:

I struggled with this long and hard, because it casts Britain and New Zealand in a way that is not totally fair…But I was setting up a situation where you needed to get a sense that these six people had nowhere else to go. It does not mean to diminish anyone.

Some plot simplification and character amalgamation is probably necessary in a film, and it is inevitable that Affleck felt it necessary to make the escape from Tehran tenser than it actually was. However, there is no excuse for the line claiming that the British and New Zealanders had turned them away, whilst the Canadians should have been shown as more active players in the story.

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Story of the victory of Canadians troops over Americans at the Battle of Ogdensburg on 22 February 1812; reblogged from Bite Size Canada, a very interesting blog on Canadian Trivia and History

Bite Size Canada

One of the world’s great examples of international co-operation is the St. Lawrence Seaway, built and maintained jointly by Canada and the United States.

Near its western end is a new bridge linking Prescott, Ontario, and Ogdensburg, New York.  Strangely, it could equally be a memorial to some bitter fighting which occurred there during the War of 1812, or to the raid by American members of the Hunters’ organization in 1838.  They were hoping to “liberate” Canada from Britain.

It was on February 22, 1813 that British-Canadian troops won a hard battle against the Americans at Ogdensburg.   Earlier in the month the Americans under Major Forsyth had come over the ice from Ogdensburg and raided nearby Brockville.  They took fifty-two Canadians back to Ogdensburg as hostages, as well las all the horses, cattle, pigs and chickens they could round up.

Major Macdonnell of the…

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Stratfor

Over the last three months, I have been republishing a number of articles from Stratfor, a US company that describes itself as ‘a global intelligence company that specializes in Web publishing and  client solutions.’ These articles have not had many hits, and I have decided that I would rather concentrate on posting things that I have written myself.

Anybody who wants to continue reading Stratfor’s reports can subscribe from this link. Enter your email in the box in the right hand column labelled ‘Sign Up for Free’ to receive the two weekly emails that I have been republishing, One is on Geopolitics and the other is about Security. You can also read them on their website, from the link labelled FREE.

Subscribers to the free reports receive regular emails inviting them to subscribe to their paid services, generally at a significant discount to the list price. I do not subscribe to these, so cannot comment on their quality.

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Lincoln

Steven Spielberg’s film Lincoln has been praised by the critics and nominated for 12 Oscars. Daniel Day-Lewis won the Best Actor BAFTA for his portrayal of President Abraham Lincoln.

Fans of war films should note that, although this film is set during the latter stages of the American Civil War, it is a political rather than a war drama. There is only one battle scene, a fair part of which is included in the trailer, plus one in which Lincoln rides over the Petersburg battlefield after the battle.

The film concentrates on January 1865, but ends in April. At the start, Lincoln has been re-elected President, and his Republican Party has done well in the elections for the House of Representatives. However, the newly elected Republicans have not yet taken up their seats, so a large number of lame duck Democrats remain in the House.

Lincoln wants to pass the 13th Amendment to the Constitution, abolishing slavery. It has already been passed by the Senate. It needs to be passed by a two-thirds majority in the House and then ratified by two-thirds of the states in order to be enacted.

Some of Lincoln’s advisers and government colleagues want to wait until the new Republican Congressmen have taken their seats. Lincoln, however, wants the amendment passed as soon as possible.

The war is likely to end soon, which will make it harder to pass the amendment. Some support it only because they believe that passing it will end the war, because the war will then be pointless. They will not vote for it if the war is over. It will also be harder to get if ratified by the necessary two-thirds of states once the Confederate states have re-joined the Union.

Even amongst those who want to abolish slavery, few agree with the views of Thaddeus Stevens (Tommy Lee Jones). He believes in racial equality and thinks that African-Americans should have the vote. His views are so radical for the time that they risk losing support for emancipation amongst those who oppose slavery without believing in racial equality.

Lincoln had issued the Emancipation Proclamation on 1 January 1863, freeing all the slaves in the states under rebellion, but not those in the four slave-holding states that did not rebel: Kentucky, Maryland and Missouri. After the war, the proclamation may be deemed to be a war only measure. It is also uncertain if he had the right to do so. He believes that preservation of the Union requires the abolition of slavery as it is the issue that splits the states.

In one particularly impressive scene, Lincoln gives his cabinet the arguments why he may not have been entitled to issue the Emancipation Proclamation and the potential inconsistencies in his case. He fears that there is an inconsistency between his use of war powers, intended for war between the USA and another country, and his insistence that the Confederacy is not an independent country.

The argument is quite complex, and I would have listened to it at least twice and perhaps three times if I had been watching a DVD rather than being at the cinema. This is not the only scene where complex arguments are put forward; this is not the film to go to if you want to leave your brain at home and relax with a large tub of pop-corn.

Having decided that the 14th Amendment must be passed now, Lincoln and his Secretary of State, William Seward (David Strathairn), set about obtaining the necessary votes. They are unwilling to resort to outright bribery, but do employ agents to offer soon to be unemployed Democrat Congressmen government jobs.

Lincoln must also keep Francis Prescott Blair (Hal Holbrook), the founder of the Republican Party happy. His support is required in order to be sure that the conservative Republicans from the border and western states support the amendment. Their main objective is to end the war.

The President therefore sends Blair on a peace mission to the Confederacy. This leads to a three-man delegation being sent by the Confederacy to negotiate peace terms in Washington. Lincoln does not want to end the war before the 13th Amendment has been passed by the House, but knows that support for it will be lost if it is known that the Confederates are willing to negotiate.

Lincoln solves this problem by delaying the arrival of the delegation. Thus, he can deny a rumour that there are Confederate delegates in Washington, because they are actually waiting elsewhere in the Union to be summoned to the capital.

On top of his political problems, Lincoln has to deal with family problems. His relationship with his wife Mary (Sally Field) is difficult, whilst his eldest son Robert (John Gordon-Levitt) is angry with his father’s attempts to stop him joining the army.

This is a superb film for about 145 minutes, but unfortunately it continues for another five or so minutes beyond a scene that would have made a tremendous ending.

It is difficult to forecast Oscar winners when you have not seen all the nominees, but if Daniel Day-Lewis does not win the Best Actor award, then whoever does must have produced an incredible performance. He dominates a film with a strong cast. It is a fine tribute to Lincoln’s achievement in  abolishing slavery in the USA, which is summed up in a quote from Thaddeus Stevens:

The greatest measure of the Nineteenth Century. Passed by corruption, aided and abetted by the purest man in America.

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Soft Targets Back in Focus – Stratfor

Soft Targets  Back in Focus is republished with permission of Stratfor.”

Read more:  Soft Targets Back in Focus | Stratfor

By Scott Stewart Vice  President of Analysis

From time to time, I will sit down to write a series of analyses on a  particular topic, such as the fundamentals of terrorism series last  February. Other times, unrelated events in different parts of the world are  tied together by analytical threads, naturally becoming a series. This is  what has happened with the last three weekly security analyses — a common  analytical narrative has risen to connect them.

First, we discussed how the Jan. 16 attack  against the Tigantourine natural gas facility near Ain Amenas,  Algeria, would result in increased security at energy facilities  in the region. Second, we discussed foreign  interventions in Libya and Syria and how they have regional or even  global consequences that can persist for years. Finally, last week  we discussed how the robust,  layered security at the U.S. Embassy in Ankara served to thwart a  suicide bombing.

Together, these topics spotlight the heightened and persistent terrorist  threat in North Africa as well as Turkey and the Levant. They also demonstrate  that militants in those regions will be able to acquire weapons with ease. But  perhaps the most important lesson from them is that as diplomatic missions are  withdrawn or downsized and as security is increased at embassies and energy  facilities, the threat is going to once again shift toward softer targets.

Soft Targets

Obviously, individuals desiring to launch a terrorist attack seek to strike  the highest-profile, most symbolic target possible. If it is well known,  the target can magnify the  terror, especially when the operation grabs the attention of international  media. Such extensive exposure not only allows people around the globe to  be informed minute by minute about unfolding events, but it also permits them to  become secondary, vicarious victims of the unfolding violence. The increased  exposure also ensures that the audience affected by the operation becomes far  larger than just those in the immediate vicinity of the attack. The attack  on the U.S. diplomatic office in Benghazi and the killing of U.S. Ambassador  Christopher Stevens led to months of media coverage that has included televised  congressional hearings and fierce partisan and bureaucratic squabbles in  the media. It was the terrorist equivalent of winning the lottery.

However, in the wake of terrorist attacks, increased situational awareness  and security measures make successful attacks difficult to replicate. Targets  become more difficult to attack — what we refer to as hard targets. When this  happens, attackers are forced to either escalate the size and force used in  their attack, identify a vulnerability they can exploit or risk  failure.

In the August 1998 attacks against the U.S. embassies in Nairobi,  Kenya, and Dar Es Salaam, Tanzania, al Qaeda planners turned to the first  option: a larger attack. They attempted to use large truck bombs to  overcome the embassies’ layered security. The embassies had decent  perimeter security but lacked enough distance between the street and the  buildings to protect them from a large blast. In both attacks, the attackers  also tried unsuccessfully to get the bomb-laden trucks through perimeter  security vehicle checkpoints to detonate them closer to the embassy  buildings.

After those bombings, security enhancements made most diplomatic  facilities more difficult to attack, leading militant groups to turn  their attention to hotels. A strike on an international hotel in a  major city can make almost the same kind of statement against the West as a  strike on an embassy. Hotels are often full of Western business travelers,  diplomats, intelligence officers and, not insignificantly, members of the media.  This has made hotels target-rich environments for militants seeking to kill  Westerners and gain international media attention without having to penetrate  the extreme security of a hard target like a modern embassy.

But increased security is not the only factor that leads those wishing to  conduct a terrorist attack to gravitate toward softer targets. For the better  part of a decade, we have chronicled how  the global jihadist movement has devolved from an organizational model  based on centralized leadership and focused global goals to a more amorphous  model based on regional franchises with local goals and strong grassroots  support. For the most part, these regional franchises lack the training and  funding of the al Qaeda core and are therefore less capable. This means  franchise groups are often unable to attack hard targets and tend to focus on  softer targets — such as hotels or the U.S. ambassador while he is staying at a  poorly protected office in Benghazi rather than at his residence in Tripoli.

Changing Threats in North Africa

As hotels in places like Amman and Jakarta became harder to attack with large  vehicle bombs, attackers began to smuggle  in smaller devices to bypass the increased security. There was also a trend  in which attackers hit restaurants where Westerners congregated rather than the  more secure hotels.

The same dynamic will likely apply today in the Sahel. We believe  that the attack at the Tigantourine natural gas facility in Algeria was greatly  aided by the complacency of the security forces. The attackers did not  demonstrate any sort of advanced terrorist tactics or tradecraft. It would be  very hard to replicate the attack on another energy facility in the  region today due to increases in awareness and security. The  increase in security will be compounded by the fact that al Qaeda in the Islamic  Maghreb and its jihadist brethren in the Sahel lack sophisticated  terrorist capabilities and have lost their bases in northern Mali.  This means they will be hard-pressed to conduct a successful attack against a  hard target.

Furthermore, having lost substantial quantities of men and materiel, and with  French and African forces potentially interdicting their lucrative smuggling  routes, these jihadist groups will be looking to refill their coffers.  Kidnapping is a longstanding way for militant groups in the region to resolve  precisely these issues. Although they have lost control of the towns they  captured in northern Mali, these groups will continue to pose a  threat of kidnapping over a wide swath of North Africa.

Turkey and Lebanon

While the jihadist militants in Syria are currently fixated on attacking the  Syrian regime, there is nonetheless a non-jihadist threat in Turkey — and  perhaps Lebanon — that emanates from the Syrian intelligence and its proxy  groups in the region. However, the Feb. 1 attack against the U.S.  Embassy in Ankara demonstrated the limitations of the capabilities of one of  those proxies, the Revolutionary People’s Liberation Party-Front.

Carrying on the operational legacy of its parent organization, Devrimci Sol,  the Revolutionary People’s Liberation Party-Front aspires to conduct spectacular  attacks, but its attacks frequently fizzle or fail. Successfully striking a  hardened target such as the U.S. Embassy is beyond the group’s capability. In  fact, the group frequently botches attacks against softer targets, as in the  attack against an American fast food chain outlet in May 2012 that  failed when the explosive device malfunctioned.

The Revolutionary People’s Liberation Party-Front’s limited tactical  capability supports the theory that the attack against the U.S.  Embassy in Ankara was commissioned by the Syrian regime. The group has even  failed in suicide bombings against Turkish police stations with far  less security; it knew it was attacking something beyond its reach.  But at the same time, the group’s limited capability and the failure of the  attack against the U.S. Embassy will likely result in a shift to softer targets  if the Revolutionary People’s Liberation Party-Front was acting at Syria’s  behest and the Syrians have asked for additional anti-American attacks.

As noted last week, Devrimci Sol conducted dozens of attacks against U.S. and  NATO targets in Turkey during late 1990 and early 1991 at the behest of Saddam  Hussein. The majority of these attacks were directed against soft targets such  as U.S. corporate offices, nongovernmental organizations, hotels and  restaurants. We believe these same targets are in jeopardy of attack by  the Revolutionary People’s Liberation Party-Front now.

Syria maintains a number of proxy militants in Lebanon, including Hezbollah. Hezbollah has its own  calculations and may not be as willing as Syria’s smaller proxy groups  to act on Syria’s behalf. Hezbollah maintains a far more sophisticated militant  capability than these small groups and is able to attack hard targets, unlike  the smaller groups. Therefore, if the Syrians commission a terrorist  attack in Lebanon and Hezbollah does not help them, the attacks their proxy  groups will carry out will be quite limited — and will again focus on soft  targets.

For the most part, soft targets are soft by their very nature. It  is not only impractical to employ embassy-like security at a fast food  restaurant, but it is inordinately expensive — too expensive to be economically  feasible for a business. Still, there are some simple and practical security  measures that can be taken to make them slightly more secure and hopefully cause  anyone planning an attack to divert their operation toward an even  softer target.

Additionally, individuals living in or traveling to these places can and  should practice good situational  awareness, review their personal  contingency plans and mentally prepare  to respond to any crisis.

Read more:  Soft Targets Back in Focus | Stratfor

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The Past, Present and Future of Russian Energy Strategy – Stratfor

The  Past, Present and Future of Russian Energy Strategy is republished with  permission of Stratfor.”

Read more:  The Past, Present and Future of Russian Energy Strategy | Stratfor

By Lauren Goodrich and Marc Lanthemann

The future of Russia’s ability to remain a global energy supplier and the  strength the Russian energy sector gives the Kremlin are increasingly in  question. After a decade of robust energy exports and revenues, Russia is  cutting natural gas prices to Europe while revenue projections for its energy  behemoth, Gazprom, are declining starting this year.

Russia holds the world’s largest proven reserves of natural gas and  continually alternates with Saudi Arabia as the top oil producer. The country  supplies a third of Europe’s oil and natural gas and is starting to export more  to the energy-hungry  East Asian markets. The energy sector is far more than a commercial asset  for Moscow; it has been one  of the pillars of Russia’s stabilization and increasing strength for more  than a century. The Kremlin has designated energy security as the primary issue  for Russia’s national security, especially since recent changes in global and  domestic trends have cast doubts on the energy sector’s continuing strength.

Throughout Russian history, the country’s energy sector periodically has  strengthened and weakened. Managing this cycle has been a centerpiece of  Russia’s domestic and foreign policy since czarist times. This historical burden  now rests on Vladimir Putin’s regime.

Russia’s Imperatives and the Energy Factor

Russia is an  inherently vulnerable country, surrounded by other great powers and  possessing no easily defensible borders. In addition, Russia is a massive,  mostly inhospitable territory populated by diverse ethnic groups that  historically have been at odds with Moscow’s centralized authority. This leaves  Russia with a clear set of imperatives to hold together as a country and  establish itself as a regional power. First, Russia must consolidate its society  under one authority. Second, it must expand its power across its immediate  neighborhood to create buffers against other powers. (The creation of the Soviet  Union is the clearest example of this imperative in action.) Finally, it must  leverage its natural resources to achieve a balance with the great powers beyond  its periphery.

Russia has used a variety of tools throughout history to achieve these  imperatives, ranging from agricultural exports to pure military  conquest and intimidation. Starting in the late 1800s, Russia added energy to  the list of vital commodities it could use to achieve its central strategic  goals. By the 1950s, Russia’s energy sector had become one of the major pillars  of its economic and political strength.

The revenues from oil and natural gas exports show how the energy sector  empowered the Kremlin to consolidate the country. Energy export  revenues for the Russian Empire began flowing into government coffers  in the late 1800s, with oil export revenues making up 7 percent of the export  earnings. These revenues rose to 14 percent in the late 1920s during the early  stages of the Soviet Union, and by the 1950s accounted for half of Soviet export  earnings. Currently, energy revenues make up half of the  government’s budget. This capital influx was and continues to be  instrumental in helping Russia build the military and industrial basis needed to  maintain its status as a regional — if not global — power. However, as the  Russian governments became dependent on energy, the revenues also became a large  vulnerability.

Beyond export revenues, the energy sector has contributed to the creation of  a domestically stable and industrialized state. Russia’s  domestic energy consumption is very high due to extremely cold weather for  most of the year, but despite inefficiencies within the energy sector  and the cost of producing energy, the country’s domestic reserves have  enabled Moscow to provide its citizens and the industries that employ them with  low energy prices.

The energy sector also contributes to Russia’s ability to expand its  influence to its immediate neighbors. Moscow’s use of energy as leverage in the  buffer states differs from country to country and ranges from controlling  regional energy production (as it previously did in the Azerbaijani and Kazakh  oil fields) to subsidizing cheap energy supplies to the countries and  controlling the energy transport infrastructure. Russia has used similar  strategies to shape relationships beyond the former Soviet states. For instance,  Russia is one of Europe’s two main energy suppliers and is the only European  supplier with large reserves of oil and natural gas and historically cheap  prices. Russia’s physical connectivity with Europe and ability to undercut any  competitor have served as the basis of many of Moscow’s relationships in  Europe.

Evolution of Russian Energy Strategies

Energy’s usefulness as a means of achieving Russia’s three main imperatives  has altered over time because Russia has had to change its strategies depending  on shifts in domestic or international circumstances. Moscow’s strength lies in  its flexibility in managing its energy sector.

The importance of Russian energy was established in the late 1800s, when the  monarchy saw great potential for the Russian Empire if it could develop this  sector on a large scale. However, the empire had neither the technology nor the  capital to start up an indigenous energy industry. As a solution, the monarchy  eased its foreign investment restrictions, inviting European and U.S. firms to  develop the Baku and Volga oil fields. This brought about a brief period of  warmer relations between the Russian Empire and many Western partners,  particularly the United Kingdom, France and the United States. All parties soon  realized that the only way to make the Russian oil business profitable despite  the high costs associated with the country’s harsh and vast geography was to  transform Russia into a massive producer. By the turn of the century, the  Russian Empire was producing 31 percent of global oil exports.

As the importance of the Russian Empire’s energy sector grew, it became clear  that Russia’s internal stability greatly affected the sector. The Bolsheviks  used the energy sector in their attempts to overthrow the monarchy in the early  1900s. The oil-producing regions were one of the primary hubs in which the  Bolsheviks operated because energy was one of the few sectors with organized  workers. In addition, the Bolsheviks used the oil rail networks to distribute  propaganda across the country and abroad. In 1904, when the Russian Empire  cracked down on an uprising in St.  Petersburg, mostly Bolshevik protesters set the Baku oil fields  on fire. This cut Russia’s oil exports by two-thirds, forcing Moscow and the  foreign markets to realize oil exports’ great vulnerability to Russian domestic  stability.

Russia’s modern energy strategies began forming after World War II.  With the Soviet Union left standing as one of two global hegemons towering over  a divided Europe, Moscow saw no barriers to achieving dominance in the global  energy field. Between the 1950s and 1960s, Soviet oil output had doubled, making  the Soviet Union once again the second-largest oil producer in the world and  primary supplier to both Eastern and Western Europe. Revenues from oil  exports started to make up nearly half of Soviet export income.

Because the Soviet Union was producing oil en masse and the Soviet  system kept labor costs low, Russia was able to sell its oil at prices  almost 50 percent lower than oil from the Middle East. The subsidization of  oil to the Soviet bloc and then to Western European countries helped Moscow  undercut Western regimes and strengthen its position in its own periphery  — a strategy that the CIA dubbed the Soviet Economic Offensive. For the  Soviets, this was not about making money (although they were making money) as  much as it was about shaping a sphere of influence and undermining the West.  This strategy came at a cost, since Moscow was not bringing in as much revenue  as it could and was producing oil inefficiently, rapidly depleting its  fields.

In the 1970s, the price of oil skyrocketed due to a series of crises mostly  in the Middle East. At the same time, Russia was already feeling the strain of  sustaining the massive Soviet Union. Soviet leader Leonid Brezhnev’s regime was  left with a choice: use the high global prices as a reason to raise prices in  Eastern Europe and benefit the Soviet economy, or continue subsidizing the  Eastern bloc in order to keep it beholden to Moscow and not push it to start  thinking about other energy sources. It was a choice between two  imperatives: Soviet national stability and holding the buffer zone. In the end,  Moscow chose to protect its own interests and in 1975 raised the price of  oil for its customers, allowing for further increases based on global  market prices. By 1976, oil prices in the Eastern bloc had nearly doubled,  remaining below global prices but rising high enough to force some countries in  the bloc to take out loans.

The Soviet focus on maintaining high energy revenues continued through the  mid-1980s, when these revenues accounted for nearly all of the Soviet Union’s  hard currency inflows. But the Soviets were dealt a double blow in the mid-1980s  when the price of oil collapsed and the West imposed an embargo on Soviet oil,  prompting Saudi Arabia to flood the oil markets. Moreover, the Soviet Union was  falling far behind the West in technology, particularly in energy and  agriculture. In response, starting in 1985, the Soviet Union moved closer to a  market-based energy economy, raising prices for the Eastern bloc, requiring hard  currencies for payment and allowing foreign firms to re-enter the energy  sector.

But Russian strategy shifts were not deep and timely enough to prevent the  collapse of the Soviet Union. In the decade following the fall of the Soviet  bloc, the Russian energy industry was in disarray. The energy liberalization  that started under Mikhail Gorbachev in the 1980s was taken to an extreme under  Boris Yeltsin in the 1990s. As a result, production fell by half and the Russian  energy sector was divided between foreign groups and the emerging Russian  oligarch class.

This changed under Vladimir Putin in 2000. One of the first items on Putin’s  agenda to help stabilize the country was to consolidate the energy sector under  state control. This meant radically reversing the liberal policies from the two  decades before. The government effectively nationalized the majority of the  energy sector under three state behemoths: Gazprom,  Rosneft and Transneft. The Kremlin became more aggressive in negotiating supply  contracts with the former Soviet states and Europe, locking them into large  volumes at extraordinarily high prices because these customers had no  alternative energy supplies. The Kremlin also began cutting energy supplies to  certain markets — blaming troublesome transit states such as Ukraine — in  order to shape other political negotiations.

Though Moscow’s energy strategy became fairly aggressive, it helped bring  about a stronger and more stable Russia. Russian energy revenues soared due to  high global oil prices and the high natural gas prices it charged in Europe.  Russia had excess funds to pump into its political, social, economic and  military sectors. Energy politics also helped Russia leverage its influence in  its former backyard and forced Europe to step back from countering Russia’s  resurgence. Of course, the financial crises that swept Europe and Russia in  2008 reminded Russia of its need for its biggest energy clients when oil prices  dropped and demand began declining.

Challenges to Maintaining Russian Energy

Russia’s top concern is its vulnerability to fluctuations in the price of  energy. With half of the Russian budget coming from energy revenues (of that, 80  percent is from oil and 20 percent comes from natural gas), the government could  be crippled should energy prices fall. The Kremlin has already decreased its  budget projections for oil prices to $93 per barrel instead of $119 — though  even at that price, the government is playing a game of chance. Stratfor is not  in the business of forecasting oil prices, but historical patterns show that  major international crises and fluctuations in global consumption and production  patterns repeatedly have had sufficient impact on oil prices and on Moscow’s  revenues to destabilize the country.

Natural gas export revenues are also currently in question. With alternative  natural gas supplies coming online for Russia’s  largest consumer, Europe, the Kremlin has been forced to lower its prices in  recent months. This year, Gazprom expects to give European consumers  $4.7 billion — approximately 10 percent of Gazprom’s net revenues — in rebates  due to price cuts.

In its current configuration, Russia’s energy sector is under strain. The  consolidation of the sector mostly under two large state firms had many benefits  for the Kremlin, but after a decade of consolidation the disadvantages are  piling up. With little competition for Russia’s natural gas giant, Gazprom, the  firm is lagging in technology and is considered unfriendly to outside  investment. Russia’s oil giant, Rosneft, recently began evolving into a  larger monopoly like Gazprom, which could lead it to fall into a similar trap.  With future energy projects in Russia requiring more advanced technology (due to  their location and environment) and more capital, both Gazprom and Rosneft need  modernization and foreign investment.

Corruption is also a major factor, with varying estimates of 20 to 40 percent  of Gazprom’s revenues lost to either corrupt or inefficient practices. Rosneft  has similar problems. This loss would be sustainable with Moscow’s previous high  energy revenues, but it will not be sustainable in the future should energy  prices fall or the maintenance and expansion of the energy sector become more  expensive. The Kremlin is probing Gazprom, although with a culture of corruption  rampant throughout Russian history there is little the Kremlin will be able to  do to eliminate wrongdoing within the natural gas firm.

Moreover, Europe’s dependence on Russian energy is decreasing. The natural  gas shortages experienced throughout Europe during the Russian-Ukrainian  crises of 2006 and 2009 were a stark reminder of how vulnerable  European nations were because of their dependence on Russian natural gas  exports. Both unilaterally and through the European Union, European countries  began developing strategies that would allow them to mitigate not only Europe’s  vulnerability to disputes between Moscow and intermediary transit states, but  also its general dependence on energy from Russia.

The accelerated development of new and updated liquefied  natural gas import facilities is one such effort. This will give certain  countries — Lithuania and Poland, most notably — the ability to import natural  gas from suppliers around the globe and bypass Russia’s traditional lever:  physical connectivity. This is particularly significant in light of the  accelerated development of several unconventional natural gas plays in the  world, particularly the shale reserves in the United States. The development of  a pipeline project that would bring non-Russian Caspian natural gas to the  European market is another attempt — albeit less successful so far — to  decrease European dependence on Russian natural gas.

Additionally, a set of EU-wide policies, including the Third  Energy Package, has begun giving EU member nations the political and legal  tools to mitigate Gazprom’s dominance in their respective natural gas supply  chains. This common framework also allows European nations to present a more  unified front in challenging certain business practices they believe are  monopolistic — the latest example being the EU Commission probe into Gazprom’s  pricing strategy in Central Europe. This, coupled with the EU-funded efforts to  physically interconnect the natural gas grids of EU members in Central Europe,  has made it increasingly difficult for Russia to use natural gas pricing as a  foreign policy tool. This is a major change in the way Moscow has dealt with the  region for the past decade, when it rewarded closer ties with Russia with low  gas prices (as with Belarus) and increased rates for those who defied it (the  Baltics).

Finally, Russia faces the simple yet grave possibility that the escalating  financial and political crisis in Europe will continue to reduce the Continent’s  energy consumption, or at least preclude any growth in consumption in the next  decade.

Russia’s Next Move

The Putin administration is well aware of the challenges facing the Russian  energy sector. Russia’s attempts in the past decade to shift away from  dependence on energy exports by focusing on industrial development have not been  particularly successful and keep the country tied to the fate of its energy  sector. Russia’s strategy of using its energy exports as both a foreign  policy tool and a revenue generator is contradictory at times: To use energy in  foreign policy, Moscow must be able to lower or raise prices and threaten to cut  off supplies, which is anathema to the revenue-generating aspect.

Global and regional circumstances have changed to the point that Moscow has  had to prioritize one of the two uses of its energy industry — and it has  unequivocally decided to maintain its revenue-generating capability. The Kremlin  has begun crafting a set of policies designed to adjust the country to the  changes that will come in the next two decades.

First, Russia is addressing the very damaging uncertainty surrounding its  relationship with key transit states that traditionally allowed it to export  energy to Europe. The construction of the Ust-Luga oil terminal on the Baltic  Sea allows Russia to largely bypass the Belarus pipeline system and ship  crude and oil products directly to its consumers. Similarly, the construction of  the Nord Stream natural gas pipeline under the Baltic Sea — and eventually its  southern counterpart, South  Stream, through the Black Sea — will allow Russian natural gas to bypass  the Ukrainian and Belarusian transit systems if necessary. These two  pipelines primarily will ensure natural gas deliveries to the major European  consumer markets in Germany and Italy, with which Russia seeks to maintain  long-term strategic partnerships.

By allowing Russia to guarantee deliveries to its major European customers,  the bypass systems ensure Moscow’s vital energy revenues. This strategy of  future energy export flexibility will also progressively reduce the leverage  Minsk and Kiev can exert in warding off Moscow’s attempts at consolidating  Belarus and Kiev as vassal buffer states — one of the few foreign policy goals  Moscow is still intent on pursuing through energy strategy.

Moreover, Moscow has adapted its energy strategy with European customers amid  growing diversification and liberalization efforts. Gazprom has begun expanding  the natural gas discounts formerly reserved for strategic partners such as  Germany or Italy. The Kremlin knows that its only hope of maintaining natural  gas revenues in the face of a potential global shale boom is to lock its  customers into price-competitive, long-term contracts. Moscow will continue  showing that it can offer European consumers guaranteed high volumes and  low-cost deliveries that producers relying on liquefied natural gas shipping for  transport can seldom afford.

Finally, Russia is focusing significant attention and funds on developing  connections to the growing East Asian energy markets, diversifying its export  portfolio should challenges in the European market continue intensifying. One  aspect common to all the strategies Russia is set to pursue for the next decade  is the high capital needed to complete them; the Eastern  Siberia-Pacific Ocean oil pipeline alone is set to cost nearly $15  billion. Despite the effects of the financial crisis in 2009, Russia still has  vast capital reserves earmarked for these large-scale projects, but these funds  are not infinite.

The Kremlin appears keenly aware of the challenges that Russia will face in  the next two decades as another energy cycle draws to an end. Unlike  Brezhnev and Gorbachev, Putin has proven capable of enacting effective  policy and strategy changes in the Russian energy sphere. While Russia’s  dependence on high oil prices continues to worry Moscow, Putin has so far  managed to respond proactively to the other external shifts in energy  consumption and production patterns — particularly those affecting the European  natural gas market. However, the long-term sustainability of the model  Russia is moving toward remains doubtful.

Read more:  The Past, Present and Future of Russian Energy Strategy | Stratfor

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