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The New York Times: Putin’s Assertive Diplomacy Is Seldom Challenged

Van Der Veer in Moscow

(“Thank you very much for your support,” Shell’s chief executive, Jeroen van der Veer, told President Vladimir V. Putin)

December 27, 2006
Memo From Moscow

MOSCOW, Dec. 26 — Inside the Kremlin last week, the executives of three major international companies — Royal Dutch Shell, Mitsubishi and Mitsui — heaped praise on the man whose government had effectively forced them to cede control of the world’s largest combined oil and natural gas project.

“Thank you very much for your support,” Shell’s chief executive, Jeroen van der Veer, told President Vladimir V. Putin during a meeting that ended a six-month regulatory assault on the project, Sakhalin II, but only after the companies surrendered control of it to the state energy giant, Gazprom. “This was a historic occasion.”

It was also a telling one, with lessons that extend beyond energy policy to such disparate matters as the killings of Alexander V. Litvinenko, a former K.G.B. agent in London, and Anna Politkovskaya, a prominent journalist.

Mr. Putin’s Russia, buoyed by its oil and gas riches, has become so confident — so arrogant, its critics say — that it has become impervious to the criticism that once might have modified its behavior. And those who might have once criticized, from investors to foreign governments, have largely acquiesced to the new reality.

The Kremlin is now dictating its terms with greater assertiveness than it has at any time since the collapse of the Soviet Union — which was 15 years ago Monday, to be precise. Many hoped that Russia’s presidency of the Group of 8 industrial nations this year would temper Mr. Putin’s diplomacy, but it has not.

Russia began 2006 by making good on a threat to cut off natural gas to Ukraine to get a higher price for Gazprom. The shutoff, though brief, provoked concern in Europe about dependency on Russian energy, and now Russia is ending 2006 by warning Belarus of the same fate.

Vice President Dick Cheney famously leveled the harshest criticism of the Kremlin to date when he accused it of using oil and gas as “tools of intimidation or blackmail.” That was in May, but since then American policy toward Russia has changed imperceptibly, with one significant exception: the Bush administration gave its approval for Russia’s long-coveted membership in the World Trade Organization.

“Russia since last year has been enjoying some feeling of euphoria, that feeling that we have so much money, so many resources that we can do what we want,” said Fyodor A. Lukyanov, the editor of Russia in Global Affairs.

The United States and Europe have little leverage beyond persuasion. And persuasion no longer works, as the Kremlin’s campaign against Sakhalin II, the largest foreign investment project in Russia, showed. The campaign was so transparent that it seemed comical, beginning with surprise inspections by a little-known environmental inspector who threatened to fine the project’s developers for every tree they cut down.

As the campaign unfolded, analysts issued warnings. Western diplomats and their governments protested. But in the end the Kremlin got what was clearly its goal: state control of a lucrative project that opens the gas market to Asia.

The three companies with the most to lose said nothing critical as they sold 50 percent plus one share of Sakhalin II for what some analysts called a discounted price, $7.45 billion. Mr. Putin immediately declared that the project’s environmental problems could “be considered resolved.”

“Experience has disappointed many foreign investors in Russia,” said Valery Nesterov, an energy analyst at Troika Dialog, an investment firm in Moscow. And yet when it comes to energy or other investments, it does little to deter them. “The attraction is so large,” Mr. Nesterov said, adding that companies like Shell still held out hope of winning access to Russia’s other oil and gas fields in the future.

The Sakhalin affair has revived memories of the government’s assault on Yukos Oil and its founder, Mikhail B. Khodorkovsky, in 2003 and 2004. When it all started, even Russia’s supporters worried about the potential damage to the country’s reputation, especially among investors.

If damage was done, it is hard to quantify now. The company is a rump of its former self, under bankruptcy receivership with its major assets now belonging to the state oil company, Rosneft. Mr. Khodorkovsky, once the richest man in Russia, remains in a Siberian prison on charges of fraud and tax evasion, and he is reportedly facing a new round of criminal charges.

Although Russia’s stock market plunged 21 percent in the month after Mr. Khodorkovsky’s arrest, with the Russian Trading System Index dipping below 500, it is now above 1,800.

The international response to the killings of two prominent Kremlin critics — Mr. Litvinenko in exile in London and Ms. Politkovskaya here in Moscow — also underscores the new reality.

There is as yet no evidence directly linking anyone in Russia to the killings, even if critics have been quick to say so, reviving some of the worst fears about the country Russia has become.

In the wake of Mr. Litvinenko’s death, The Daily Telegraph of London declared flatly, “Russia is rotten to its heart.” A recent cover of The Economist showed Mr. Putin dressed like a gangster, holding a gasoline nozzle as a machine gun.

The British government, by contrast, has said nothing so critical, even after British detectives who came to Moscow were confronted with strict limits on their ability to question witnesses.

Wealth has emboldened Mr. Putin and those around him. At a roundtable interview this month, the first deputy prime minister and chairman of Gazprom’s board, Dmitry A. Medvedev, brushed aside questions about the company’s management, its corporate philosophy and its investments in newspapers and other ventures seen as political. He suggested that the Kremlin, perhaps, had been right, and all of its critics wrong.

“The value of Gazprom in 2000 was $9 billion,” Mr. Medvedev, often cited as a potential successor to Mr. Putin, said. “Today it is between $250 and $300 billion.”

Others warn that Russia is ignoring the consequences of its behavior, that the monopolistic policies of Gazprom, the erosion of political competition and the easy dismissal of critics blinds the Kremlin to the dangers of the overly centralized system Mr. Putin has created.

Mikhail A. Kasyanov, Mr. Putin’s prime minister from 2000 until 2004 and now one of his biggest critics, said the foreigners who rushed to join Russia’s boon were equally complicit. “Investors are very shortsighted,” he said in an interview.

Copyright 2006 The New York Times Company

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