[PEN-L:32455] protection rents, part 4

["Ian Murray" <seamus2001@xxxxxxxxx>]

[still untold is what bundle of carrots and sticks the Bushies used to get
the French vote.]

Russian 'Interests' In Iraq Recognized
Moscow Neutrality During War Sought

By Michael Dobbs and Susan B. Glasser
Washington Post Staff Writers
Friday, November 22, 2002; Page A01


Like his father during the run-up to the 1991 Persian Gulf War, President
Bush is using the lure of money and political respect to persuade a
reluctant Russia not to stand in the way of a U.S.-led war with Iraq.

Russian officials say they have reached an understanding with the Bush
administration on Russia's economic interests in Iraq, including concerns
about the plummeting price of oil as a result of an Iraqi oil boom should
President Saddam Hussein be overthrown. While vigorously denying that there
has been a specific agreement, U.S. officials say they are aware of Russian
concerns and are taking them into account in planning for a post-Hussein
Iraq.

"We understand that Russia has got interests there, as do other countries,"
Bush told the independent Russian television station NTV in an interview
broadcast last night. "And of course those interests will be honored."

On Saturday, Bush will acknowledge Moscow's role in agreeing to a unanimous
United Nations Security Council vote on a stringent new inspections regime
for Iraq, by traveling to the former Russian imperial capital of St.
Petersburg for his seventh meeting with Russian President Vladimir Putin.
Over the past few days, Bush has gone out of his way to praise Putin for his
help in the war on terrorism and his handling of a recent hostage crisis in
Moscow, in which 128 civilians were killed by poison gas administered by
government security forces in an attempt to free them from Chechen
guerrillas.

The American wooing of Putin is reminiscent of the diplomatic campaign waged
by President George H.W. Bush in the fall of 1990 to win the support of
then-Soviet leader Mikhail Gorbachev for U.N. resolutions endorsing the use
of "all necessary means" to end Iraq's occupation of Kuwait. In return for
Soviet acquiescence in the use of military force against Baghdad, Bush held
out the prospect of political and economic support for Gorbachev at a time
when he was struggling to hold the Soviet Union together.

The main difference between the two rounds of diplomacy, according to U.S.
and Russian analysts, is that Putin is more realistic than Gorbachev about
what he can get in return for giving Washington a relatively free hand in
Iraq. Rather than demanding a huge infusion of Western aid for a moribund
economy, he has focused his attention on gaining U.S. assurances of respect
for Russian economic interests in Iraq, most of which center on the
country's future as the largest Middle East oil producer, after Saudi
Arabia.

"Putin is a very pragmatic politician," said Dmitri Simes, president of the
Nixon Center, a Washington think tank that has focused on U.S.-Russian
relations. "Instead of trying to stop things that are going to happen
anyway, he tries to get the most he can, both for his country and for
himself politically."

At the top of Putin's list of economic concerns is the fear of collapsing
oil prices once U.N. trade sanctions against Baghdad are removed and Western
investment begins to pour into the neglected Iraqi oil sector. According to
an estimate by Celeste Wallander of the Washington-based Center for
Strategic and International Studies, a $6 fall in the price of a barrel of
oil would slash Russian economic growth in half. If the price fell to $13 a
barrel, most Russian oil companies would no longer be profitable.

Russian and U.S. officials said Putin is also anxious to protect the
contracts of Russian oil companies in Iraq, including a $3.5 billion deal
for the state-owned Lukoil to develop a giant oil field in southern Iraq,
and would like to recover up to $12 billion in old Iraqi debts. One
possibility believed to be under discussion is to use a portion of Iraqi oil
proceeds to pay off part of the Russian debt.

A high-ranking Russian foreign ministry official involved in negotiations
with the United States over the U.N. resolution told an American visitor to
Moscow this week that a "gentleman's agreement" had been reached with
Washington on Iraq.

He said the deal centered on maintaining a price of oil at around $21 a
barrel, the price used by Russian government planners for long-term budget
estimates. Oil prices have been hovering around $25 a barrel for much of
this year.

While acknowledging that discussions have taken place with the Russians over
the price of oil, U.S. officials dismissed suggestions that the United
States can influence the market very much. They added, however, that they
have tried to allay Russian concerns about plummeting oil prices in the wake
of a U.S. victory in Iraq, concerns that are described as exaggerated by
many American experts.

"Generally, we would like to see stability [in the oil price]," said a U.S.
official involved in Russia negotiations. "Wild swings up and down unsettle
the markets."

Iraq produces around 2.4 million barrels of oil a day, compared with Saudi
daily output of around 7.4 million barrels. Estimates of Iraqi production by
2010, in the event of large-scale foreign investment and a lifting of
sanctions, vary from around 4 million barrels a day to 7 million or even 8
million.

By addressing Russian concerns about falling oil prices, the United States
would also be looking after the interests of Saudi Arabia, a key U.S. ally
in any future Persian Gulf conflict. In the short term, however, the low
cost of extracting Saudi oil means that Riyadh is much better positioned
than Moscow to ride out a period of low prices. In the past, analysts note,
the Saudis have deliberately used low oil prices as a weapon for forcing
other producers out of the market.

Russian officials have painful memories of the way in which the Saudis used
their excess capacity to flood world oil markets in 1985, the year that
Gorbachev came to power, causing prices to drop by more than half to a low
of $12 a barrel. Combined with declining Soviet oil production, plummeting
prices effectively destroyed Gorbachev's hopes of reinvigorating the Soviet
economy, leading directly to the breakup of the Soviet Union.

Since Putin took office in 1998, by contrast, Russian oil exports have
jumped sharply from 3.8 million to 5.4 million barrels a day, providing a
ray of light in an otherwise gloomy economic picture.

By drawing up a concrete economic wish list on Iraq, Putin is following a
different strategy from Gorbachev, who dreamed of a "grand bargain" with the
United States under which the Soviet Union would receive large-scale
economic assistance in return for sweeping economic reforms. "Both sides
made promises that they could not come through on," said Jack Matlock, a
Princeton university professor who served as U.S. ambassador to the Soviet
Union during the Gorbachev period.