COMMENT: Putin's anti-US rhetoric: how bad for business?

By bne IntelliNews February 13, 2007

Ariel Cohen of the Heritage Foundation in Washington -

The cold shower that Russian President Vladimir Putin unleashed on the US at the international security conference in Munich spooked official Washington. In my 14 years in the capital, I do not recall such an outpouring of disappointment with Russia.

Yet this should not have come as a surprise. After all, Putin himself and a host of other senior spokesmen, including his defence minister, Sergey Ivanov, and military chief of staff, General Yuri Baluevsky, have said as much in the past. It is the forum and the ferocity that shocked the town - and the world.

The questions that Western investors need to confront are simple: what to do about the deteriorating US-Russian relations? And how badly will all this hurt?

The answers may be surprising. The markets appear to have largely discounted the chilling rhetoric as the RTS only gently slid; there was nothing in the speech to indicate that Russia will clamp down on international companies; and with the exception of "strategic" oil and gas projects, and some high-tech ones, foreign investment in Russia is unlikely to suffer all that much.

True, the list of complaints Putin heaped against the West is long, but it is mostly defense-related. The main beef is that the US "hyper power" is pursuing its unilateral foreign, defence, cultural and economic policy, disregarding international law, and ignoring the UN (where Russia has a veto power). French President Jacques Chirac would be proud.

Putin accused the US of expanding NATO to Russian borders and deploying "five thousand bayonets" each in forward bases in Romania and Bulgaria.

He blasted the future US missile defence bases in Central Europe, possibly in Poland or the Czech Republic. Putin stated that the missile defences are aimed at neutralizing Russia's retaliatory nuclear strike capability - a destabilizing factor in the Russian nuclear playbook.

Putin blamed US policies for the failure of nuclear non-proliferation, implying justification for North Korean and Iranian efforts to acquire weapons of mass destruction.

A cold wind blowing

Many Russian and Western experts perceive Pupin's speech as a declaration of a new Cold War. The outburst has a number of domestic and international "drivers," which give a picture of Russia seeking strategic parity with the US and defining its national identity in opposition to the West.

Domestically, several years of increasingly loud anti-American and anti-Western propaganda in pro-government and nationalist media have nurtured a generation of Russians who are ethno-centric and reject liberal values. 60% in a recent poll supported the slogan "Russia for Russians."

The "America-as-the-enemy" construct bolsters the legitimacy of the current regime as the defender of Mother Russia. Russia is also planning to spend $189bn in the next five years for a rapid military modernization. Clearly, such a program is aimed at balancing off the US military power, not fighting terrorists in the Caucasus mountains.

Russia is also trying to corner the market in weapons sales, especially to those of rogue- and semi-rogue states. Russia is the largest arms supplier to China and Iran; it signed a $3bn arms deal with Hugo Chavez's Venezuela over US objections and is courting Middle Eastern buyers.

Russia is happy to play into the Arab and Muslim street's anti-Americanism and to signal that the US no longer has exclusive strategic dominance in the Persian Gulf and in the Middle East.

It is no accident that the speech was delivered on the eve of Putin's historic visit to Saudi Arabia, the first for any Russian or Soviet leader, and to Qatar and Jordan - the US' allies in the Middle East.

The timing of Putin's speech couldn't be worse from Washington's perspective. With Iraq in limbo and Iran remaining truculent, the chances for Russian cooperation in taming Teheran's nuclear ambitions are dwindling.

Russia is putting not just military might behind its rhetoric, but also economic muscle: Putin publicly approved of the Iranian Supreme Leader Ayatollah Ali Khamenei's idea of creating a natural gas OPEC-style cartel.

Still, the image of a new Cold War may be too simplistic to describe the emerging global world architecture. Clearly, the post-communist honeymoon is over, so a realistic reassessment of the relationship is in order.

The US should avoid a rhetorical confrontation with Moscow. Deeds, not words, are necessary to send a message to the Kremlin that Washington is not interested in a renewed hostility.

The US should continue cooperation with Russia on issues and interests of mutual concern, such as energy, non-proliferation and space.

The business communities - both Western and Russian - can and should play the role of shock absorber. Russia will not prosper without Western investment, managerial and technical know-how, markets, and information. Russia won't be able to meet Putin's goal of doubling GDP in 10 years if the confrontation with the US is not controlled.

For Western investors, Russia offers a huge unsaturated market for housing, energy services, capital, and consumer goods, education, even travel and leisure. Western business will be missing out if it ignores Russia.

In the end, cooler heads should prevail. Cold warriors in Washington and in Moscow need to take a chill pill. After all, the Cold War is over. We've watched that show and don't want to see it again.

Ariel Cohen, Ph.D., is Senior Research Fellow in Russian and Eurasian Studies and International Energy Security at Heritage Foundation

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