RADIO FREE EUROPE/RADIO LIBERTY, PRAGUE, CZECH REPUBLIC
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RFE/RL Russian Political Weekly
Vol. 6, No. 15, 11 August 2006

A Weekly Review of News and Analysis of Russian Domestic Politics

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HEADLINES

* WHAT DO SANCTIONS MEAN FOR BUSINESS TIES?
* AS MIDDLE EAST HEATS UP, MOSCOW MAINTAINS BALANCING ACT
* GOVERNMENT PLANS MAJOR INVESTMENTS IN DISPUTED KURILE ISLANDS
* OFFICIALS SAY BETRAYAL, BAD INVENTORIES BEHIND HERMITAGE THEFTS
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BUSINESS

WHAT DO SANCTIONS MEAN FOR BUSINESS TIES? The U.S. sanctions on
Russia’s arms export body Rosoboroneksport and the Sukhoi
aircraft manufacturer may put a two-year freeze on business dealings
between those firms and private U.S. companies — including the
aeronautics giant Boeing. What’s behind the sanctions, and how
will they affect U.S.-Russian ties?
WASHINGTON, August 11, 2006 (RFE/RL) — The U.S. State
Department’s August 4 announcement that it was imposing sanctions
on the two Russian defense firms set off a firestorm in Moscow.
It also sent many American enterprises running to review
their Russian contracts.
The sanctions were leveled against a total of seven firms —
in Russia, North Korea, India, and Cuba — for their dealings with
Iran.
U.S. government agencies and private firms are facing a
two-year block on working with any of the targeted companies on
projects that could be interpreted as having a military function.
Russia has no direct military contracts with the United
States. But the sanctions could still hit private companies with
long-standing business ties in Russia.
The most notable of these is Boeing. It is working with
Sukhoi on a Russian civilian regional jet, the SuperJet 100. It is
also the main consumer of titanium produced by a Russian firm
(VSMPO-Avisma) that is set to be purchased by Rosoboroneksport.
And it also hopes to hold on to a $3-billion contract to
supply Russia’s Aeroflot with Boeing 787 jumbo jets.
Boeing spokesperson Tim Neil says the company is attempting
to gauge the impact of the sanctions.
"Boeing is still assessing the effect of these sanctions on
our business in Russia," Neil said. "However, based on our initial
review, we do not believe that the sanctions will affect our
commercial relationships with Russian suppliers of titanium, or our
work with Sukhoi on the SuperJet 100 program. That said, we are
continuing to assess the situation and coordinate with the U.S.
government to make sure that we’re in full compliance."
Such assessments are meant to ensure that private firms are
collaborating with Russia on civilian, not military, projects.
Items like titanium parts do not appear to fall under the
current U.S. restrictions; Boeing officials have said the
company’s projects in Russia "fully adhere" to both U.S. and
Russian export law.
Boeing is one of a number of U.S. firms to review its
contracts with Sukhoi and Rosoboroneksport.
Sharon Weinberger, the editor of "Defense Technology
International" magazine, says companies are racing to determine how,
and if, the sanctions will affect their business dealings.
"When these State Department regulations go out, the first
thing that companies will tell you is that it’s very, very hard,"
Weinberger said. "U.S. companies struggle a lot with State Department
regulations — most notably, trying to figure out which items are
civil items, and not necessarily controlled by the State Department,
and which items are military items."
Spokespeople like Boeing’s Tim Neil say it is not the job
of private firms to second guess political decisions by the
government — even those that may affect their business.
But Russian officials openly criticized the sanctions as an
"unfriendly act" that will only exacerbate existing tensions in the
Moscow-Washington relationship.
Sergei Chemezov, the director of Rosoboroneksport and a
former KGB colleague of Russian President Vladimir Putin, said this
week that the sanctions would hurt "the effectiveness of U.S.
contingents in Iraq and Afghanistan."
Chemezov’s remarks were an apparent reference to a
proposal that would allow U.S. trading firms to sell Russian weapons
to those countries.
The United States says the sanctions were imposed because the
seven targeted firms were involved in the sale of materials to Iran
that could contribute to the development of weapons of mass
destruction.
But, Weinberger notes, many Russian officials are skeptical.
"Of course that’s the stated reason," Weinberger said.
"People are certainly looking, especially in Russia, for subplots.
There’s certainly a political motivation to this. One has to look
at the timing. There was the recently announced $3 billion in arms
sales to Venezuela that the U.S. has protested repeatedly. So yes,
that should, by the letter of the law, be separate from the concerns
over Iran. But I think you’d have to be very, very optimistic not
to think that the two are related, at least in timing."
Venezuelan leader Hugo Chavez, an open critic of the United
States, drew condemnation from Washington for his highly publicized
arms deal with Russia, which was signed July 27.
The U.S. sanctions were officially registered two days
earlier, on July 25.
It remains to be seen how the sanctions will affect
Russia’s defense exports. (Heather Maher)

ARMS SANCTIONS ‘NOT POSSIBLE’ TO CONTEST ON LEGAL GROUNDS.
PRAGUE, August 8, 2006 (RFE/RL) — The United States has imposed
sanctions on two major Russian arms dealers — state arms exporter
Rosoboroneksport and the aviation firm Sukhoi — for allegedly
selling high-tech equipment to Iran. The August 4 move has been
widely condemned in Russia as an "unfriendly act" aimed at crippling
Russia’s arms industry.
It comes against the backdrop of strained bilateral relations
in recent weeks. Moscow and Washington have failed to reach agreement
on Russia’s World Trade Organization bid and continue to disagree
on resolving the Middle East conflict and on dealing with Iran’s
nuclear program. And during a recent high-profile Moscow meeting,
Russian President Vladimir Putin and Venezuela’s Hugo Chavez
inked arms deals worth about $1 billion. RFE/RL’s Russian Service
spoke with Nikolai Zlobin, the director of the Russia and Eurasia
Program at the Washington-based Center for Defense Information, about
the U.S. sanctions.
RFE/RL: Is there any foundation behind the U.S. decision to
impose sanctions on Rosoboroneksport and Sukhoi?
Nikolai Zlobin: I think that, of course, the motivation is
serious. The Americans usually act on the basis of laws and facts and
evidence. Of course, they might choose not to use these facts and
evidence, but I have no doubt that their decision has a logical
basis. From a purely legal point of view, it won’t be possible to
contest this decision. You can contest it at the political level, but
from the economic and legal points of view, I’m sure that
everything has been thought through. The Americans usually think
about these things carefully and don’t make mistakes.
RFE/RL: The U.S. State Department spokesman said that this
decision is not directed against state organs, but only affects
private companies in the United States. How can we speak of a
political component?
Zlobin: Whenever the State Department or the Commerce
Department or the Justice Department advises defense contractors,
arms producers, not to deal with certain companies around the world,
you can be sure that the advice is seriously thought out on the legal
level. There can be no questions about the legal side of this. As for
the political side, the State Department made a decision about when
and how to announce this decision and even whether to announce this
decision regarding these companies. The fact that they made this
decision, I think, means that it has a political nature.
RFE/RL: Do you think it is connected to recent developments
in Russian-Venezuelan relations?
Zlobin: I think that it is connected with a whole complex of
factors, including the fact that the Americans suspect that Russia
occasionally violates international agreements and directly or
indirectly sells or transfers weapons — or at least facilitates the
sale or transfer of weapons — to countries, regimes, or companies
that the United States does not approve of or that are under
international sanction. So, there is definitely a political
component, and Venezuela plays a role — the Russian-Venezuelan
military contracts have alarmed the Americans. There are various
points of view on this, but it is a fact that possible future
Russian-Venezuelan military cooperation — not so much what is
happening now, but what could happen in the future — played a role.
I completely agree with that.
RFE/RL: Judging by press reports, the head of Sukhoi has
repeatedly sworn that for at least the last seven or eight years, his
firm has not sold a single screw to Iran. Can we believe such
statements?
Zlobin: I think you can. Of course, one should look into the
matter concretely. The Americans generally look into such situations
carefully because a firm like Boeing can hire very competent, very
professional, very expensive lawyers to prove that the U.S.
government is wrong. Statistics show that American firms win cases
against the government rather more often than the government wins
such cases against firms.
RFE/RL: That means there is something to fight for if the
sanctions are enforced?
Zlobin: Of course there is. And I think they will fight; they
will appeal. If they are able to prove that the sanctions were
introduced with even the slightest violation of some law or other,
they can succeed in having the sanctions lifted.

POLITICS

AS MIDDLE EAST HEATS UP, MOSCOW MAINTAINS BALANCING ACT. PRAGUE,
August 10, 2006 (RFE/RL) — As tensions rise in the Middle East with
the conflict between Israel and Hizballah and the continuing Iran
nuclear crisis, Russia continues to play a careful game.
Moscow has called on Hizballah to stop its rocket strikes
against Israel and return the captured Israeli soldiers, while it has
also appealed to Israel to stop its aerial and artillery bombardment
of Lebanon and withdraw its troops from the south of the country.
Even Yevgeny Primakov, one of Russia’s leading experts on
the Islamic world and known for his pro-Arab stance, said that
Hizballah should be disarmed and did not exclude the possibility that
Russian troops could participate in a multinational force on the
Israeli-Lebanese border.
And Moscow, together with Beijing, on July 31 supported a
U.S.-backed UN Security Council resolution on Iran demanding that
Tehran stop its nuclear program in the course of a month or face
international sanctions. Moscow said, however, it could not support
the sanctions as it is "against a language of threats and ultimatums
toward Iran."
Now, a new wrangle between the United States and Russia over
Iran is possibly on the horizon. On August 4, the United States
announced that it has imposed sanctions on two Russian arms companies
that had violated a U.S. Congress ban on selling material to Iran
that could be used to make weapons of mass destruction. Moscow has
denounced the sanctions as "groundless."
These diplomatic maneuverings are consistent with
Russia’s policy in the Middle East, which attempts to strike a
balance between the major protagonists: Iran, Syria, Israel, China,
the European Union, and the United States.
But if war escalates in the Middle East, Russia would most
likely have to abandon its balancing act. That would probably mean
that Moscow, if not allying itself directly with Israel and the
United States, would distance itself from Iran and its Arab partners
— just as Moscow did with Saddam Hussein’s Iraq.
In many respects, Moscow’s policy converges with the
position of the United States. Both countries do not want to see
nuclear weapons in the hands of Tehran’s ayatollahs. Especially
as Iran poses a more immediate threat to Russia as its medium-range
missiles could penetrate into the European part of the country.
Moreover, if Iran obtained nuclear weapons it could become
less dependent on Russia diplomatically and militarily and could
compete more fiercely against Russian interests in Central Asia and
the Caspian basin.
Russia and the United States are also united by their
antipathy toward the "revolutionary Islamic" ideology propagated by
Tehran and Hizballah.
Shi’a Hizballah, which was the brainchild of Iran and
created in the early 1980s, originally aimed to drive Israeli troops
from Lebanon and pioneered the use of suicide bombers, known as
shaheeds. In 1983, suicide bombers carried out two terrorist acts in
which 242 U.S. servicemen and 58 French paratroopers were killed in
two strikes in Beirut. The identity of the bombers was never proven
and a number of groups claimed responsibility. Many within past and
current U.S. administrations believe Hizballah was responsible for
the attack.
Hizballah’s ideology incorporates traditional Islamic
elements along with radical leftist and Marxists teachings. The group
sees its allies not only among Islamists, but has the support of
various leftist, Marxist, and antiglobalization groups in the West.
Russia could, however, feasibly benefit from an escalation of
hostilities in the Middle East. As a major energy exporter, Russia
would benefit from the likely major rise in oil and gas prices. China
and the EU, on the other hand, would likely face severe economic
difficulties.
Not only would Russia profit financially, but could gain new
geopolitical ground, with the EU more dependent on Russia for energy.
That could also push China to rely more on Russian energy resources,
causing Beijing to invest in building pipelines in Russia’s Far
East. (Victor Yasmann)

GOVERNMENT PLANS MAJOR INVESTMENTS IN DISPUTED KURILE ISLANDS. The
Russian government has announced plans to make the Kurile Islands in
the Pacific Ocean the best-funded region in Russia. The 2007-15
program will boost federal funding to more than $600 million — the
equivalent of $1,000 per person per month – on the sparsely populated
islands. The announcement is likely to anger Japan.
PRAGUE, August 9, 2006 (RFE/RL) — Which part of the Russian
Federation — a country deep in demographic crisis — has suffered
the worst population decline of the last decade?
Chechnya, you might suppose, after years of bloodshed and
population flight, or the rapidly emptying spaces of northern
Siberia.
But you would be wrong — at least in percentage terms. The
record is held by the Kurile Islands, a string of rocky outcrops
stretching south from the Kamchatka Peninsula to the Japanese island
of Hokkaido.
Sixty-one years after the Kuriles were seized from Japan by
the Soviet Union at the end of World War II, scarcely 6,000 civilians
still make a living on the islands. They are outnumbered by soldiers
almost two to one.
But, says Russian Economic Development and Trade Minister
German Gref, enough is enough. His 17 billion-ruble program to
develop the islands promises a transformation.
And not just in the economy. According to Dmitry Trenin,
deputy director of the Moscow Carnegie Center, Russia is sending an
unequivocal message to Japan that the Kuriles are no longer up for
negotiation.
"The message is unambiguous: The limit of Russian potential
concessions to Japan, which was made clear by both President
[Vladimir] Putin and Foreign Minister Lavrov, would have Russia, in
case of a peace treaty being signed with Japan, transferring the
island of Shikotan and the Habomai group of islands to Japan," Trenin
said. "That limit is now being confirmed by the development project."
Shikotan and the Habomai group, which form part of the
southern Kuriles and are of little economic or strategic interest to
Russia, were first offered to Japan in 1956 by the Soviet Union in an
effort to reach agreement on a formal peace treaty pertaining to
World War II. Tokyo didn’t agree then and is unlikely to do so
now. It insists on the return of all the Kurile Islands.
Japan refers to the islands as the Northern Territories. Even
before Moscow’s investment program was unveiled, Prime Minister
Junichiro Koizumi, speaking ahead of July’s G8 summit in St.
Petersburg, complained that the impasse over the islands was having a
damaging effect on Japanese investment in Russia.
Why though has Moscow decided to act now?
Trenin sees the plan as part of a wider attempt to address
weaknesses along Russia’s vast border.
"It also sends I think a very clear signal that the exposed
territories of the Russian state are now being taken care of and you
look at Kaliningrad, which now has received much more attention than
it was getting for many years; you look at the North Caucasus; and
you look at the money which the government is about to spend on
reconstructing Chechnya, and to me this is all part of the pattern,"
Trenin said.
The Kremlin must have considered, too, how the program will
be received by Japan. John Swenson-Wright is an expert on Japan and
North-East Asian security issues at Chatham House, a London-based
international affairs think tank.
"I suspect that this may in part be an effort to anticipate
the change of leadership in Japan," Swenson-Wright said. "The prime
minister [Koizumi] steps down in September. Some people have argued
that there is growing nationalism in Japan and the Russians may be
attempting to reassert their position in the face of what they
anticipate may be a more hard-line position by whoever takes over as
prime minister."
The strategy appears to be to present Japan with a fait
accompli.
Until now, the future of the islands was kept in doubt by
Moscow’s apparent lack of interest and their isolation from the
mainland. The only airport is too short for most aircraft. It was
built by the Japanese for kamikaze pilots who showed little concern
for the length of the landing strip.
That is about to change. By 2017 the Kuriles will have a new
all-weather airport linking them with the mainland, a port, new
roads, 20 fish-processing factories in place of the ramshackle pair
that exist today, and, it is hoped, a precious-metals mining
industry.
But, as Trenin argues, Moscow cannot afford to alienate the
Japanese.
"Japan is a significant player and the potential for
Russian-Japanese collaboration is not to be ignored," Trenin said.
"The development of the Far East and Siberia is one of the most
important, if not the most important geopolitical problem that Russia
is facing in the 21st century and in order to have Japan as a bona
fide partner you would have to give Japan something from the
territories that they are claiming."
By putting facts on the ground — like the airport and new
infrastructure — Russia may calculate that Japan will ultimately
have little choice but to accept the reality of Russian sovereignty.
But, says Swenson-Wright, Moscow may be misjudging the Japanese mood.
"The Russia-Japan relationship has always been one in which
the economic incentives have been relatively limited in terms of
swaying political and diplomatic opinion within the Japanese
political establishment," Swenson-Wright said. "This is one bilateral
relationship where economics have taken a back seat to these larger
territorial and political issues. There is a great deal of emotional
sensitivity on the part of the Japanese. The legacy of the war is
still in many ways a live issue in the minds of Japanese negotiators
and their political leaders."
Which, if he is right, may yet undermine the scheme for the
regeneration of the islands. Federal investment is undoubtedly
needed, but without private investment from Japan — the Kuriles
nearest neighbor – the long-term future of the islands may be little
brighter than it is today. (Robert Parsons)

CULTURE

OFFICIALS SAY BETRAYAL, BAD INVENTORIES BEHIND HERMITAGE THEFTS. The
revelation that St. Petersburg’s renowned Hermitage Museum had
been systematically robbed of 221 precious art objects has
underscored yet again the vulnerability of Russia’s cultural
treasures.
PRAGUE, August 7, 2006 (RFE/RL) — It has all the elements of
a classic mystery novel.
Hundreds of icons and precious objects worth an estimated $5
million are systematically stolen from Russia’s most storied art
museum, the Hermitage in St. Petersburg.
The majority of the items, it becomes clear, were taken from
a single storeroom — whose guardian, a curator identified as Larisa
Zavadskaya, died suddenly late last year.
Museum officials bring in investigators, suggesting the heist
is an inside job.
Those suspicions gains credence when the first two arrests in
the case, made this weekend, are Zavadskaya’s husband and son. A
third person has since been reported arrested as well.
Museum Director Mikhail Piotrovsky has called the theft "a
stab in the back."
It isn’t the first time such a crime has been committed.
Russian museum workers are notoriously underpaid, and museum security
admittedly lax.
But in a press conference today in Moscow, federal cultural
officials sought to lay blame with museum officials and their
lackadaisical approach to record-keeping.
Boris Boyarskov, the director of Rosokhrankultura, the
federal service for the protection of Russia’s cultural heritage,
said that keeping track of the Hermitage’s material and cultural
valuables is a problem that has existed for a long time.
"This could be seen as early as 1993, in inventories that
were done by what was then the Culture Ministry. A number of
subsequent checks offer the same conclusion — museum authorities
were conducting very incomplete inventories," Boyarskov said. "In
recent checks we conducted together with the federal cultural agency
[Roskultura], we became convinced that the inventory records are a
mess."
Frequent inventories are key to museum security, says Julian
Radcliffe, chairman of the Art Loss Register, a private international
firm specializing in tracking stolen art and antiques.
Radcliffe says the Hermitage theft bears all the trademarks
of a standard museum theft: nearly all of the 221 items were in
storage, none were insured, and the records keeping track of them
were sloppy at best
"The great majority of thefts from museums are from storage.
The ones that are given the great headlines are the thefts of major
items which are on public display, but the much bigger and constant
problem is theft from items in storage where they can only undertake
a stock check once every three or four year because of the volume of
items," Radcliffe says.
Speaking from London, Radcliffe says large British museums
like the Victoria and Albert — which, like the Hermitage, has close
to 3 million items — are lucky to be able to take stock of their
collection every three or four years.
Police in St. Petersburg have suggested that it may have been
30 years since some of the stolen items were checked. They also said
that only 19 of the items were in the care of curators who were still
alive.
Radcliffe says clean records and external auditors are key to
keeping a collection secure, particularly in a museum like the
Hermitage that has 2,500 employees — who may not always have the
museum’s best interests at heart.
"The other necessity is to make certain that the staff of the
museum are well-motivated and security is good in relation to your
own staff as well as to the public who are viewing," Radcliffe says.
"The great problem for museums has been theft by curators or
contractors. And for many years, a lot of those thefts were never
reported, because the curator couldn’t work out which of his
staff was dishonest and just didn’t want to rock the confidence
of his directors, potential donors, and the public, by admitting that
he had staff that were corrupt."
Boyarskov of Rosokhrankultura says between 50 and 100 thefts
are registered each year in Russian museums, many of them inside
jobs.
Such recent crimes include the theft of more than 300 works
from Moscow’s State Historical Museum, and the disappearance of
nearly 200 objects from the armory of St. Petersburg’s Peter and
Paul Fortress.
The Hermitage has posted a detailed list of the missing items
on its website (). Several objects have
been returned to the museum in recent days, although it is unclear if
they are among the stolen works.
Radcliffe says it’s unlikely the Hermitage will see many
of the objects ever again. "The recovery ratio for expensive, good
paintings is probably 15 percent. But for smaller, decorative art
objects like these [taken from the Hermitage], I’m afraid the
usual recovery ratio is much lower," Radcliffe says. (Daisy Sindelar)
(RFE/RL’s Russian Service contributed to this report.)

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