News Notes and a Free Classic

  • Not So Fast Yankee! – the Federal Anti-Monopoly Service‘s recent approval of Archangel Diamond Corporation‘s (ADC) application under the new strategic industries law is subject to a caveat. Specifically, though ADC’s application was approved under the strategic industries law, it is subject to the condition that an ‘ancillary agreement’ be made between ADC and FAS by November 15. According to reports, the FAS provided ADC with a draft of the agreement, and has said that it received a response. The FAS’ reply is reportedly being sent on November 11, a mere four days before the agreement’s deadline. Another ADC press release reported that the approval was subject to a condition regarding local diamond processing. One expert questioned the reasoning behind this requirement, as the FAS does not have any diamond cutting expertise and reportedly has neither consulted with the Arkhangelsk regional government (where the mine is located) nor with diamond experts within Russian federal agencies and in the Russian private sector (though apparently Rosnedr is involved). Furthermore, the proposed ancillary agreement vaguely requires that diamonds from the mine “should be cut and polished in Russia, at a location to be decided later, and in a volume for carat sizes that has not yet been agreed. The draft says nothing about export rights.” Perhaps FAS was deferring to ADC on hammering out the details, but it will be interesting to see how this ends up. See previous posts on ADC here and here.
  • But India, You’re Cool – also in strategic industry news, India’s Oil & Natural Gas Corp. (ONGC) received its second and final approval from FAS to acquire Imperial Energy, under legislation covering acquisitions of Russian companies by foreign state-owned corporations. Despite the global liquidity crunch, the FT noted that “the deal was approved with unusual speed, highlighting emerging economies’ enthusiasm for energy deals with each other, especially those involving national oil companies.” This is consistent with how Imperial was found to be not covered by the strategic industries law, even though its recoverable reserves clearly meet the law’s threshold, as I pointed out earlier.
  • Kremlin to Wait Bush OutThe Moscow Times reported today that relations “will come to a virtual standstill” until President-elect Obama is inaugurated.  Specifically, talks on missile defense and arms reductions will not resume until Bush leaves office.  As the Arms Control Association points out here, Russia and the United States are obligated under the Strategic Offensive Reductions Treaty of 2002 (SORT) to reduce their deployed strategic forces to between 1,700 and 2,200 warheads by the end of 2012.  The treaty lacks, however, a verification mechanism, so the parties rely on the START treaty to enforce SORT.  And as START is set to expire next year, new talks are needed in order to prevent SORT from failing.  To put the whole record in context, remember that Bush withdrew the U.S. from the ABM Treaty in December 2001, Putin suspended Russia’s participation in the CFE Treaty and threatened to withdraw from the INF Treaty in 2007.  Thus, the Bush-Putin era yielded two repudiated treaties, one seriously threatened, and one new treaty (and don’t forget the stillborn US-Russia Civilian Nuclear Cooperation Agreement that Bush withdrew after the South Ossetian war).  Furthermore, the one new treaty (SORT) is seriously in danger if another treaty (START) is not renewed.  If negotiations over START fail, that will yield a net loss of five arms control treaties coming out of the Bush-Putin era.  For all the ups and downs of the US-Soviet relationship, I do not think our cooperation on arms control has ever been at such a low, not to mention dangerous, point. 
  • Кризис is Russian for Crisis – Bloomberg reports that devaluation of the Ruble is growing more likely, citing a number of analysts from investment banks (the same ones who authored reports about Russia’s stability as an investment destination just 7 months ago). RosBusinessConsulting does not agree. Over at Russia Economy Watch, Edward Hugh makes some more informed observations. It seems that the Bloomberg analysts have taken to heart the Russian proverb, “The peasant does not cross himself until thunder strikes” (Пока гром не грянет, мужик не перекрестится – Khodorkovsky recently argued that Russian leaders suffer from the same mindset). It’s amusing that people who make a career out of predicting future performance are so reactionary. Yes, oil prices could fall or stabilize at $60/barrel for a period. But the idea that a finite resource with declining output and long-term increasing demand will not go back up in price is ridiculous. Ironically, when these ‘experts’ speak or make trading decisions on these ideas, they induce a panic that contributes to the outcome they predicted. Bloomberg, like every other news outlet, continues to cite the astonishing loss of wealth amongst Russia’s oligarchs as evidence supporting the direness of the situation. Still, Russia’s GDP is expected to grow this year, albeit at a reduced rate like every other country in the world. Russia does indeed face massive long-term constraints – its poor infrastructure, shrinking population, and ineffective and corrupt institutions. But these problems will play out over the long-term and Russia can and must implement reforms to meet them. Unfortunately, the analysis we get from experts is that Russia is either (a) soaring with indefinite GDP growth and flush with a neverending supply of cash, or (b) on the verge of collapse and broke. And this analysis is not even analysis, because it is only based on the price of oil right now.
  • Mistakes Were Made – there seems to be a critical mass forming around the conclusion that Georgia, in fact, started the war with South Ossetia back in August (remember?). First, reports of an OSCE report disputing Saakashvili’s chronology of events registered a blip on the media’s radar last week, though it was mostly lost amongst the indulgent self-congratulation over Obama’s victory. Then, last Friday during its daily press briefing, the State Department quietly admitted that Georgia’s invasion was a mistake, though it did not justify Russia’s invasion. The journalist who asked the question referenced the NYT piece, and asked whether there is a U.S. investigation underway to better understand what really happened. Deputy Spokesman Robert Wood’s response was priceless: I think we need to get away from looking at, you know, who did what first, because as I said, I don’t think we’ll ever really get to the bottom of that.” The journalist asked whether this might be interpreted as “blind support for a U.S. ally,” to which Wood responded, “Look, I’ve said what I’ve said on this.” Thus, in light of new reports yielding clarity on what really happened in August, the State Department’s official and only response is that as it is impossible to determine with certainty what happened, there is no value in examining the issue at all. I will post the video of the press briefing below, because I think cognitive dissonance is more enjoyable on film (Georgia comments are in the first 1:50). Meanwhile, as more evidence of Georgian war crimes are coming to light (btw, what ever happened to our Ambassador for War Crimes Issues who went out there in September?), back in Tbilisi, the opposition held massive rallies last Friday, on the one-year anniversary of Saakashvili’s crackdown on civil liberties and to protest his dubious war. You can see why they want to change the subject.

  • On a programming note, you will notice that if you scroll to the bottom of the screen, there is a copy of Dostoyevsky’s Notes from Underground embedded in the blog. I love this book and it has many memorable moments that can be enjoyed individually.
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