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Interview

Prof. Richard Sakwa – University of Kent – offers his insight on the current temperature settings with USA, UK and the European Union. In this interview we discuss leading political figures, political parties, ideological undertones and existing challenges, all whilst drawing on recent and upcoming events such as the USA’s 2012 presidential election, UK’s 2015 general election, the death of Berezovsky, Cyprus crisis and energy trade quarrels among Russia and Europe.

Interview

Over the last decade relations between Russia and the West have intermittingly fluctuated from periods of warm fronts to cold drafts.

Prof. Richard Sakwa – University of Kent – offers his insight on the current temperature settings with USA, UK and the European Union. In this interview we discuss leading political figures, political parties, ideological undertones and existing challenges, all whilst drawing on recent and upcoming events such as the USA’s 2012 presidential election, UK’s 2015 general election, the death of Berezovsky, Cyprus crisis and energy trade quarrels among Russia and Europe.

Interviewee: Richard Sakwa, Professor of Russian and European Politics, Head of School at the University of Kent. As the leading UK scholar in Russian Politics, Prof. Sakwa is an Associate Fellow of the Russia and Eurasia Programme at the Royal Institute of International Affairs, a member of the Advisory Boards of the Institute of Law and Public Policy in Moscow, chair of the Advisory Board of the Eurasian Political Studies Network and a member of Academy of Learned Societies for the Social Sciences

Interviewer: Igor Ossipov, Russian International Affairs Council Intern and Blogger

Photo: Richard Sakwa, Professor of Russian
and European Politics, Head of School at
the University of Kent

Prof. Sakwa, in your opinion, will the second term of President Barack Obama result in an improvement of Russia-US relations? Also, what would have been different in these relations if the Republican Party had been elected instead?

I think we should expect more of the same from the second term. In other words, I do not expect a radical improvement of Russia-US. relations, but fortunately I do not expect a major deterioration. I think Barack Obama and his team; which comprises John Kerry as the Secretary of State and Vice-President Joe Biden, who was in part the architect of the ‘reset’, will carry on as before. However, I do think that the ‘reset’ perspective is now obsolete, as the relationship will be more practical, pragmatic and business-like.

Fortunately the highly ideologized Hillary Clinton is no longer the Secretary of State and even more so Condoleezza Rice. Kerry is much more pragmatic, practical and less ideological. Hillary Clinton was possibly the worst Secretary of State the United States has had for a long time, with an inability to understand the position of her interlocutors. I cannot recall a single achievement of her incumbency. In fact, she escalated tensions everywhere. In Syria, which will be a big issue in Obama’s second term, she immediately demonised Assad and de-legitimated attempts of reforms. We do not know whether these reforms would have worked, but she did not even give them a chance. Also, aligning with conservative Sunnidesert monarchies, was questionable. Thus, in that context things can only get better!

Unfortunately, there are very difficult issues. For instance, the Magnitsky List and the fact that at one point 232 names were mooted. This will be a permanent irritant and it is almost deliberately so – it is like a thorn which will be constantly in the side. What makes the whole situation worse is that the Magnitsky Act was redundant, since in July 2011 the State Department already imposed sanctions on Russian officials allegedly implicated in Magnitsky’s death. In regards to missile defence, Obama has reduced the 4th element, but they are still pushing ahead with it, though not so aggressively. So I think both sides will just bracket certain topics and agree not to discuss these matters too much. In short, the relationship is torn between pragmatism and ideology, and in that context I do not anticipate substantive improvement, but there is the possibility of concrete cooperation on specific issues. I think the Obama administration clearly wishes to establish business-like relations.

Photo: REUTERS
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The election of Republicans at any point would make relations with Russia worse. Even as Mitt Romney said in his election campaign: ‘Russia is our enemy number one’. If Mitt Romney was to be elected, the end result would have been unthinkable. Romney’s and the Republicans domestic and foreign policies are extreme. The Tea Party has almost a stranglehold on Republican policy making. Clearly, with the failure of the Republicans in the last elections, they have a lot of thinking to do, both in domestic and foreign policy. There are signs of this already, but the battle for the soul of the Republicans is continuing.

Hence, the US-Russian relations could have got worse under the Republicans, especially as it would have coincided with Putin’s return for a third-term, with him in a rather militant mood, feeling serially betrayed. In other words, he was not going to be pushed about by the West. He is now more experienced and will be fighting for Russia’s interests. So I think that would have been a major confrontation. At the same time, I do not think that the relationship between Putin and Obama is very good, but it is not bad as it is based on mutual respect and both are willing to work together.

Which political party is likely to win 2015 general elections in the United Kingdom? How will the victory of each of the main parties affect Russia-UK relations?

First of all, one must say that the Conservative Party under the Foreign Minister William Hague is trying to become rather more pragmatic as well. However, it is being intensely criticised for this in certain circles. For them, the notion of ‘engagement’ is a dirty word and the concept of dialogue is discredited, which I think is disgraceful. Nevertheless, William Hague is looking for a way forward in Russo-British relations and the Conservatives are trying to put things on a stable footing. Not necessarily a good footing, but a stable one, which is at least some achievement. However, Cameron’s government is clearly a hostage to its own special interests in the mass media, which is virulently Russophobic.

With the Litvinenko Inquest due to start in October, already statements have emerged that some evidence will not be shown in public. Allegedly, it is to please the Russians, when in actual fact it was probably intended to ensure that evidence about the involvement of MI6 is not revealed. As we know that both Boris Berezovsky and Litvinenko were paid significant sums of money by MI6, which is quite extraordinary. So this will be a possible irritant to relations.

I do not know who will win in 2015, but if the Labour Party wins I do not anticipate an improvement in relations. The Labour Party so far has not been able to define its policy in any major policy area. It too was deeply socialized to the Murdoch press’s way of thinking. It seems that the 2015 election is theirs to win, as they are running 10% above others in the opinion polls, yet Labour is very afraid to say anything which will show their position, because they will then be attacked relentlessly. This is due to the fact that they remember the fate of Neil Kinnock, but the point is – why should anyone vote for Labour, when no one has any idea what policies or ideas they offer?

Traditionally, Labour is more ideological than the Conservatives on foreign policy and for various reasons it has never been a close friend of Russia. Gordon Brown was a poor leader who jumped on any populist bandwagon that happened to be passing, and under him relations deteriorated drastically. Tony Blair of course at the beginning welcomed Putin. However, this was not because Blair actually respected the political subjectivity of Russia, or its own perspectives on world politics; it was simply cheap populism of which Tony Blair was very good at. In all, there was no foundation on which to build a sustained long-term relationship. This is a shame as the British government could have been closer with Russia. Today, the UK has not been able to devise independent policies and remains yoked to America over matters in Iran, Iraq and so on.

If the Liberal Democrats retain a significant position, they would make relations even worse vis-à-vis Russia, as Liberal Democrats are also very militant and ideological. The Lib Dem’s credibility is greatly diminished, but many still ask the question – will they be holding the balance in the next government, possibly in an alliance with Labour? I think that it is unlikely. I think they will be slaughtered at the next election and the UK will be back to either a Labour or a Conservative single government, but I hope it will be Labour.

Overall, I do not anticipate major improvements in relations between the UK and Russia whichever government is elected. But, hopefully these relations will be stable and business-like.

What effect will the death of Boris Berezovsky have on relations between Russia and the UK? Can Russian oligarchs be viewed as a lever to influence politics in Russia?

I do not think that Berezovsky’s death will have much impact. At the beginning there was of course an innuendo that the Russian special services were involved, but the consensus now is that it clearly was suicide, with no external involvement. Impact will be minor as Berezovsky was very much a marginal figure in British politics. I know that the Russian media exaggerated his influence, just as Berezovsky used to exaggerate his own influence in the 1990s under Yeltsin’s government. In reality, Yeltsin did not like or it could be said he even detested Berezovsky.

There are two types of Russian oligarchs in the UK, the ones who are still with the regime, and we also have plenty of oligarchs who have escaped the system and are now considered to be political refugees. I am talking about Chichvarkin (Yevroset), Borodin (Bank of Moscow) and others. But those from the former group, like for example Roman Abramovich, have a very different status. Abramovich has made a very substantial and positive investment in Chelsea Football Club, which I happen to support, despite sacking seven managers in nine years. For instance, the year he purchased Chelsea FC he was voted the ‘Man of London’.

If I may broaden the above question, oligarchs are one thing, but between 300,000 and 400,000 Russian people living in London is another important factor, as it is an important cultural force. This London based community, as well as the diaspora in other parts of the UK, are altering perceptions. I personally know many Russians and one strong perception I get is that they are all deeply patriotic. No matter whether they are critical or supportive of the Russian government, they all care about Russia. Interestingly, there are even Russian festivals in the UK, this year’s ‘Maslenitsa’ was celebrated everywhere in London, although not everyone may have heard of it yet, no one even had heard this word 5 years ago.

In regards to the ‘lever’ aspect, I do not think that it can be interpreted as such. It is just a very large Russian community in London, which does not speak with one voice. In fact, there are even several different Russian newspapers that compete for readership. The typical complaints that Russian’s buy all the expensive apartments and spend vastly are quite obviously exaggerated, but then it is very useful for the UK economy as they are the only ones that can buy anything at such high prices. So can these groups affect Russian state policy, or vice-versa? – Unlikely.

Photo: Petros Karadjias/AP
Protesters hold a banner that reads 'Hands off
Cyprus' during an anti-bailout rally in Nicosia,
Cyprus

In your opinion, how will the Cyprus Crisis affect relations between Russia and the EU? Can it damage the mutual strategic trust which is being slowly established at the moment?

The language in which the deal was couched in March 2013 was openly Russophobic. It was common to see phrases like Russian oligarchs, Russian money, Russian criminals, Russian capital, or Russian bandits. I read an article that replaced the word ‘Russian’, with ‘Jewish’, which made the prejudice open and indecent. I particularly think that the Dutch Finance Minister with the support of the Finish Finance Minister were absolutely disgraceful, contrary to the view that it was mainly the Germans.

This conduct showed that there is deep hostility and misconception towards Russia. As in reality Russia’s VTB Bank was doing fine, there was no problem with its Cyprus branch. Second, the so-called ‘oligarchs’ withdrew their capital from the economy even before the crisis, when the now defunct Laiki Bank and the Bank of Cyprus were exposed to the Greek semi-default, or the ‘hair-cut’, it was clear that there would be problems. Third, as I understand, the really important issue was Cyprus’s internal behaviour, which the EU wanted to alter. Hence, the primary aim was to punish Cyprus, but if they could also punish Russia that would be a double-bonus. However, this indeed spectacularly backfired.

The initial motives were in line with the spirit of the Russian President Vladimir Putin, as it reflected his last year message of de-offshorization. However, the EU soon changed its ambitions and targeted honest accounts. The reason for so much Russian capital being in Cyprus at this point was not because of oligarch’s money. It was the capital of Russian small-medium sized businesses, which were using the island’s British based laws, securities and expertise in financial intermediation. Thus, Cyprus Banks were useful for Russian businesses as Russian banks did not yet have a long reliable record, or financial sophistication to carry out complex intermediation.

I think the Russian government has now understood that this is a very complex intra-European matter in which it cannot get involved directly. Obviously, as any nation Russia must defend their citizens and it can legitimately complain about the losses by its depositors; just like the British government is complaining. In actuality it affects the British holders perhaps more than the Russians as they only makeup 1/3 of the total capital. Just like the Russian press, the British press is full of stories about people losing 60% of their capital, for instance an old lady selling her house via Cyprus. Hence, I think Russia has now even been forgotten.

The biggest repercussion of this event was that individuals lost their confidence: in the euro as a currency, in the banks and in overall European institutions. Hence, the next time there is a crisis in Italy, Spain, Portugal, or Ireland there will be a bank run. There is a huge crisis of confidence and it could even lead to the end of the euro as we know it, as the euro could be left as a northern currency, with southern states being withdrawn.

What is interesting, why did the Cyprus Finance Minister come to Moscow? As there is still that question of a $2.5 billion loan which Russia granted to Cyprus. Russia actually played its cards quite sensibly as it did not interfere; it knew it could not to be part of the Troika as this was a European Union matter. However, the fact that EU did not even contact and coordinate action with Moscow was typical rudeness, but that is the norm in this relationship and not a major issue. For the Russian economy, there are now two problems, FDI (Foreign Direct Investment) flowed between Cyprus and Russia and the island served as an intermediation mechanism, both functions are now lost.

Recent energy relations between Russia and several European states have soured leading to arguably an anti-Russian stance. Europe’s alternative pipeline has even been called “Nabucco” – does Europe really feel enslaved by Russian energy dependence in a Verdian sense?

I think that would be an over-interpretation, but for the fundamental question of European energy security, there are a number of interlinked negatives. These stem from the fact that energy and politics interlock and those who wish to do so use the gas stoppages of 2006 and 2009. These stoppages dealt a huge blow to Russian credibility. Even though Russian arguments were justifiable and legally speaking Ukrainian obstructions were not. But sometimes you can win the battle, but lose the war, and Russia did this spectacularly. Its approach was brash, and cutting the supply was not the correct manner to approach the situation, even though Ukraine was being very difficult. Of course politicization in the West was endless and the language used was very aggressive, like claims of countries being held hostage. It was not justified, as Russia has been a historically stable and reliable partner. Hence, I think it is time for both sides to calm down, not dramatise and discuss the issues in a pragmatic way as both have real concerns.

As for immediate issues, it is important not to draw quick conclusions. For example, the Gazprom anti-monopoly investigation by the EU is not unprecedented, as for instance Microsoft was also investigated with huge fines being dealt. This is a normal part of the European process. However, the ‘Third Energy Package’ with its ‘unbundling’ was explicitly and clearly an anti-Gazprom law. At the same time Gazprom is becoming dysfunctional in a number of ways as an instrument of gas distribution for the West. Many wonder why small states like Moldova pay over $400 per 1000 cubic meters, whilst big powers like Germany are getting a discount; obviously the markets are different in size, but the price difference is questionable as it seems to be above additional costs to supply a small nation.

I think there is a perception now that Gazprom is becoming a dinosaur or even a liability for the development of Russian gas, which worries both Europe and Russia. It is a non-controllable, non-transparent body and in a way it may actually serve Russia’s interest to transparently separate it, making Russia more flexible and able to respond to changing market conditions more effectively. The one thing I can predict that in 10 years the energy markets will be much more impulsive. So Gazprom’s tendency to prefer inflexible pipelines, like recent talks with Poland about Yamal-2 Pipeline, is increasingly less logical. As we know, both South Stream and Nabucco were politically motivated projects, with the former costing a minimum $20 billion; but given the diversification of markets, US game changing shale gas, LNG and Russian failure to expand or develop new field like Shtokman, it is questionable whether pipelines are the right path. Nabucco has been effectively abandoned, but then why is South Stream still going to run?

Energy security is very hard to define: for one side security is for another a threat. However, one thing I think most agree on is that energy security is not about supply routes, it is about security of the actual supply and price. Ultimately, Western powers are rational actors and their companies will look to get the best price and best resource. They will come to Russia if it fulfils these requirements. At the moment Europe’s energy dependence on Russia is not that great anyway. It has diversified, for instance to Norway and Algeria. Also, I see shale gas and tight oil (low permeability formations), as a real game changer in the next 10 years. I would say Russia must be very careful and diversify as well to the East. It would be sensible to maintain more options; however it is clear that Europe will still remain number one choice as China will never pay anything close to European market prices. Russia will need to carefully manage its energy resources, as its budget greatly depends on them.

I think that this investigation may actually be healthy for the Russian economy and for Gazprom in the long-run, as it could lead to more openness and efficiency. For instance, genuine Russian competitors like Novatek and Rosneft will be able to provide competition. As Gazprom is a huge resource for the Russian government it needs to evolve to keep providing similar rates of return. This all could lead to better management, more transparency and in effect improve the business environment and investment climate of the economy, which will only benefit the government, the economy and the Russian people. Russia has to be more nimble and responsive, as it cannot continue going to arbitrage courts, which just poisons the atmosphere. It is obvious that the spot markets are growing massively and although long-term contracts will play a role, are they really in the ultimate long-term interest of Russia as the trend is going the other way? So bottom line, as Russian President Vladimir Putin said on various occasions, we should not over-dramatise the situation, but continue to pragmatic discussions and pragmatic policies.

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