Archive for the ‘russia’ Category


March 15, 2008 1631 GMT
Russian security forces foiled a sniper’s March 2 attempt to assassinate President Vladimir Putin, Reuters reported March 15, citing Moscow tabloid Tvoi Den. An unnamed source told Tvoi Den a sniper was arrested before Putin entered the Kremlin gates to attend a concert next to the Red Square. The Kremlin declined to comment on the report, and a security source quoted by Itar-Tass denied the report.

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MOSCOW, January 31 (RIA Novosti) – Russia’s Finance Ministry said on Thursday it had divided the Stabilization Fund, set up to accrue surplus revenue from high world oil prices, into the Reserve Fund and the National Prosperity Fund.

The Stabilization Fund held 3.852 trillion rubles ($157 billion) as of January 30.

Pyotr Kazakevich, deputy director of the ministry’s department for international financial relations, government debt and government finances, said the Stabilization Fund was transformed on January 30, when its assets were credited to the accounts of the new funds.

The Reserve Fund, designed to cushion the federal budget in the event of an oil price plunge, totaled 3.069 trillion rubles ($125 billion) just after its formation, while the National Prosperity Fund, expected to help Russia carry through pension reforms, held 783 billion rubles ($32 billion), Kazakevich said.

The ministry official said that 80% of resources in the newly created funds will be invested in government bonds of countries approved by the Russian government, 15% in the bonds of foreign government agencies and central banks, and 5% in international financial institutions.

From not too long ago:

… Some analysts have speculated that the Kremlin-friendly oligarch Oleg Deripaska was roped in by the state to buy the country’s seventh-largest oil producer, Russneft, which is struggling under the weight of hundreds of millions of dollars in tax claims. Its former president, Mikhail Gutseriyev, was recently placed on an Interpol wanted list after fleeing the country to escape what he has called politically motivated charges against him.

The campaign against Gutseriyev and Russneft has prompted comparisons with Yukos, which was felled by more than $30 billion in back tax claims and the jailing of its founder, Mikhail Khodorkovsky. Khodorkovsky accused Igor Sechin, Putin’s deputy chief of staff and chairman of Rosneft’s board, of orchestrating the campaign against him.

Rosneft has now gobbled up most of Yukos’s assets, growing from a middling oil concern into the country’s largest oil company mainly through its purchase of Yukos’s largest production units, Yuganskneftegaz, Tomskneft and Samaraneftegaz. Absorbing those acquisitions will take up much of Rosneft’s attention as it prepares to go global and challenge the likes of Shell and BP.

Sechin must be pretty fat and happy right now. He has been agitating for exactly this for a while.

Rosneft has been like a python trying to digest a cow — its gobbling up of Yukos was funded by $23 billion in debt. Sechin has been mad about it ever since, and he saw the $157 billion in reserves as the solution to his problem. I guess he got what he wanted.

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Stratfor tells us that Yuri Luzhkov, Moscow’s hybrid of Bill Daley and Al Capone, is in Vladimir Putin’s sights.

Luzhkov wields unprecedented mayoral power over the Russian capital, with close ties to major bankers, media moguls and the city’s biggest businesses. When he became mayor in 1992, his wife Yelena’s small construction company, Inteco, burst onto the Moscow scene, performing 20 percent of all construction work in the capital. Now, Inteco accounts for most of the construction in Moscow and many other cities, making Yelena Russia’s only female billionaire. …

Putin has long wanted to go after Luzhkov and end his reign over Moscow and the construction business, but the president has held back because of Luzhkov’s many political backers in the Duma and supposed Mafia ties. Moreover, Luzhkov is on the board of Putin’s political party, United Russia.

The straw that broke Putin’s back was the December 2007 legislative elections; not only was voter turnout in Moscow low, but votes for United Russia also were abysmal. …

Stratfor sources say Putin has given Luzhkov until the fall to tie up loose ends in his mayoral post, and he must then resign. Moreover, Putin is already clearing out Luzhkov’s supporters in the Duma, stripping Alexander Chiligarov of the Duma vice presidency and Iosif Kobozon of his place on the Duma Commission.

It remains to be seen if Putin will just strip Luzhkov of his mayoral title or if he intends to go after the mayor and his wife’s construction and real estate empire. Many Kremlin insiders and other oligarchs have been salivating at the thought of getting their hands on Luzhkov’s assets.

But Luzhkov is not the sort to go quietly. He still has some tools — mainly his alleged ties to the largest Mafia in Russia — that he might be tempted to use against Putin and the Kremlin, though making such a move would amount to suicide.

But on the other hand, Putin could use this time to prove to the Moscow Mafia that his control over the country will not be shaken by any move that the Mafia — or anyone else — would want to make against the Kremlin. Some of Putin’s loyalists allegedly have their own ties to the Moscow Mafia, and the president could use the Mafia members who supposedly are connected to Kremlin insiders against those said to be loyal to Luzhkov, fracturing one of the most powerful mafias in the world.

I don’t know that much about Russian politics, and most of what I do know, I learn from Stratfor first. But it bears repeating, over and over again, that one sniper bullet between the eyes of Putin, Vladislav Surkov, Igor Sechin, Dmitri Medvedev, Alexei Miller, or Oleg Deripaska would probably spark another violent spiral into 1990’s-style gangland warfare.

Putin has not been making very many friends on the Russian political scene. The KGB/FSB, the institution that made him, is bridling at the material damage Putin has inflicted upon the clan of Igor Sechin, which basically comprises the Ministry of Justice, the old-line security bureaucracies, and Rosneft (the devourer of Mikhail Khodorkovsky’s Yukos).

Yuri Luzhkov is a billionaire many times over, and Moscow is his fief. If he goes, his construction and real estate empire (nominally his wife’s) will exist solely at the pleasure of Putin’s clique — which has shown itself to be ruthlessly acquisitive against “big boys” who aren’t part of the Kremlin club.

Even if Luzhkov is willing to run that risk (which is doubtful), what about Moscow mafiosi, who probably murdered central banker Andrei Kozlov, among thousands of other important people over the past eight years?

One day, somebody will refuse to yield his fief. Everyone who has seen his fief cut back or wholly confiscated during the Putin years will be thirsty for revenge.

The Kremlin has become a clearinghouse for political power, and Putin is its chief market maker. But Sechin’s entire clan (the Rosneft bloc) is restless at the growth of Surkov’s Gazprom clan. As Putin demonstrated in his liquidation of Vladimir Barsukov’s Tambov mafia, Putin is not loyal to the institutions which made him the power he is.

Putin holds substantial power and wealth himself, and through Surkov and Deripaska he has the allegiance of much more. But the Yeltsin oligarchs in exile have been fighting a war on the run with Putin for years — Boris Berezovsky, for example, has four identical limousines which take different routes to wherever he goes — and they have been out in the cold for a very long time. George Soros and Marc Rich have been fighting a different kind of battle with the Kremlin since well before Yeltsin’s day. The Sechin clique has been unhappy for its own reasons. The Tartarstan clique, a group of “Russian” Tartar and Bashkir oligarchs whose fiefdom has been functionally independent from Moscow for years, knows it is not far down Putin’s most-wanted-assets list, as well.

Putin has many committed enemies. From Putin’s track record, one doubts Putin has many reliable friends.

Luzhkov’s clique faces the choice between capitulation with uncertain results, “amiable exile” a la Roman Abramovitch, or standing for its fief, and hoping that other clans rally to it.

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The one rationalization I have gotten from the National Intelligence Estimate, a revolt by the CIA, DNI and probably the Navy which crushed America’s negotiating leverage with Iran over the future of Iraq, is that Israel cannot be a credible linchpin of American foreign policy after Hezbollah defeated them in 2006. Adding insult to injury, Israel further wrecked its credibility by allowing Ehud Olmert to keep power after the Israeli military’s biggest institutional failure since the Yom Kippur War of 1973. Basically, Olmert’s coalition partner, Labour, must put off a new election for as long as possible in the hope of turning its abysmal poll numbers around. Binyamin Netanyahu’s strategy of bolting from Ariel Sharon’s Kadima party has paid off, and Likud is poised to return to power in the coming election. Labour’s ideology of diplomacy with the Palestinians has fallen completely out of favor with the Israeli public. Their mooring to Olmert, combined with Labourite Defense Minister Amir Peretz’s shambolically politicized performance during the Lebanon war, have crippled Labour’s credibility.

Israel established a “blue-ribbon commission,” the Winograd committee, to ruthlessly analyze the what, when and why of Israel’s 2006 failures. Somehow, Olmert has apparently suppressed its findings for over a year, with the tacit support of Israel’s discredited Labour establishment. Israelis have not waited with such baited breath on one set of findings since they waited for Moses at the bottom of Mount Sinai.

Every “political analyst” thinks that the Winograd report will destroy Olmert, whenever it comes out. But everyone already knows Olmert and his clique performed disastrously. I am not sure what this changes, really. It’s analogous to publishing the number of bullets that hit somebody a year and a half after s/he was murdered. Everyone has already moved on.

Anyway, the FT thinks this will be a big deal.

Lebanon verdict puts Olmert in line of fire

By Tobias Buck

Published: January 29 2008 01:02 | Last updated: January 29 2008 01:02

They call him the “Houdini of Israeli politics”, but Ehud Olmert may well need more than the skills of the famous escape artist if he is to survive the latest challenge to his embattled tenure as prime minister.

On Wednesday, the high-profile Winograd committee will publish its findings into the government’s handling of the disastrous war in Lebanon in July and August 2006.

The report is widely expected to criticise Mr Olmert’s leadership both in the planning and execution of the war. Even before publication, it has triggered a wave of protests by the prime minister’s domestic opponents and families of soldiers who died.

The report will focus on the final two days of the conflict, when Israel threw its troops into a last-ditch battle against Hizbollah forces in southern Lebanon. The final assault was intended to inflict severe damage on the militia before a UN-sponsored ceasefire took effect on August 14. But the poorly executed attack changed little on the ground, and Hizbollah’s tough resistance killed 33 Israeli soldiers.

The episode came as a shocking blow to an Israeli public that is deeply attached to its revered armed forces and expects elected leaders to show a high degree of military competence.

Mr Olmert has declared that he will not step down in the wake of the report, and the Winograd committee is not expected to issue a direct call for the prime minister to leave office.

… But the man who may feel the pressure of the Winograd report even more intensely than Mr Olmert played no role in the war at all. Ehud Barak, the defence minister and leader of the Labour party, returned to politics only last year, joining Mr Olmert’s government more than 10 months after the last shot of the Lebanon war was fired.

In a promise that has come back to haunt him, Mr Barak at the time vowed to pull Labour out of the coalition government headed by Mr Olmert’s Kadima party after the publication of the Winograd committee’s findings.

The former prime minister now finds himself facing an unenviable choice. He can stick to his pledge, bring down the government, and force new elections.

But according to all opinion polls, a fresh vote would further reduce Labour’s seats in the Knesset, the Israeli parliament, and return his arch-rival, Benjamin Netanyahu of the right-wing Likud party, to the prime minister’s office.

To make matters worse, that outcome would almost certainly put an end to the Israeli-Palestinian peace talks – which enjoy the support of Labour voters.

Or Mr Barak can break his promise, and retain Labour’s crucial backing for the Olmert government. The defence minister knows, however, that this would deal a severe blow to his credibility and expose him to harsh attacks from both inside and outside the party.

Moreover, staying in the government may merely prolong the inevitable, with Mr Olmert’s fragile coalition already crumbling at the fringes.

Some officials and analysts point to a middle way. According to their scenario, Mr Barak could either force Mr Olmert to agree to early elections maybe a year from now, allowing the government to continue the peace talks and giving Mr Barak time to reverse Labour’s standing in the polls.

Or he could call on the Kadima party to replace Mr Olmert with another leader – most likely Tzipi Livni, the foreign minister – in return for staying in the coalition.

The ambitious Ms Livni has made no secret of her desire to replace the prime minister, and she and Mr Barak are said to have a good working relationship.

Without knowing the precise content of the report Israel’s political scene has entered a phase of fevered speculation. Mr Barak has so far refused to clarify his position, stressing that he will read the report first before deciding on a course of action.

For Mr Olmert, however, one thing is already clear. No matter how ingeniously he performs over the coming days, the fate of his government is now at least partly in the hands of Mr Barak.

The damage has already been done. Israel’s pathetically myopic execution of the war, and irresponsible aftermath, have damaged its credibility permanently. The United States’ Middle Eastern policy can now be summarized as “sustainable withdrawal.” Israel is a credible investment only insofar as it can exert vastly disproportionate leverage over Middle Eastern affairs, and it was manhandled by one arm of the Iranian state. Meanwhile, its politicians prefer throwing away the lives of Israeli soldiers to assuming responsibility.

Israel will be fine without the United States. It will always be a Jewish Switzerland, and Russia’s perpetually insecure Jewish oligarchs, e.g., Lev Leviev (diamonds), Roman Abramovitch (oil) and others, will always need a haven. (That was why Russia and Israel agreed to mutually unfettered immigration — russki have no interest in Israel, and Russian Israelis have no interest in going back, but Russian Jewish oligarchs need a place to go on very short notice.)

But the American-Israeli romance is drawing to a close.

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A massive throng of Georgians has protested Mikheil Saakashvili’s alleged victory in the most recent Georgian elections, where Saakashvili supposedly earned 53% of the vote.

Exactly three months ago, massive protests in Tbilisi, the capital of Georgia, nearly toppled the Saakashvili regime. Luckily, Saakashvili has been a favored recipient of funds from George Soros, via his friend Mark Malloch Brown at the UNDP (United Nations Development Programme). A gold-plated, foreign-funded budget has allowed Saakashvili to equip his soldiers with state of the art “nonlethal weaponry” such as acoustic cannons — ideal for crowd dispersion without spattering blood all over world television cameras.

Nonviolent crowd control only works if each side is confident that the other will not escalate to lethal force. It’s common knowledge in Georgia that massive amounts of foreign and Soros money are funding the Saakashvili regime, and that the “election monitors” who eagerly ratified Saakashvili’s alleged 53% have the same paymasters have the same paymasters as those who have bankrolled Saakashvili’s oh-so-nonviolent police army.

For many former subject peoples of Moscow, the choice is between Soros-phile oligarchs under UN auspices, and Moscow. Moscow is rapacious, but even Moscow is kinder (in the long run) than the likes of Leonid Kuchma, Anatoly Chubais, and Boris Berezovsky.

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While I don’t pay as much attention to Stratfor’s Mideast analyses as I used to, their CIS updates remain very interesting and far ahead of the mainstream media curve. Their “Russia — Struggles Within” pieces are of particular interest, and showcase the simmering instability of Russia’s elites as well as the very brittle nature of the institutions undergirding Putin’s novaya Russia.

Below are some of the most enlightening excerpts.

… Stratfor has followed Putin’s internal consolidation since he came to power in 2000. We also have tracked the power struggle under him, which seems to be just as nasty as — if not worse than — the previous power struggle among the old Kremlin clans.

The Old Clans

The former factions that fought for control of the Kremlin were fairly straightforward; most were leftovers from either the Soviet days or the Boris Yeltsin era. The three major factions within the Kremlin for most of Putin’s reign have been the siloviki, the Family (and its most prominent branch, the St. Petersburg brigade) and the oligarchs — though there were myriad smaller clans as well. …


As part of his plan to consolidate Russia politically, economically and socially, Putin has shattered most of the old clans, pulling those he trusts the most and those who are the most useful from each and placing them directly underneath him. …

However, as Putin dismantled the old factions, a new clan structure developed among those under him competing for power. … The two main clans under Putin are not of one ideology or social sphere but are instead organized under two competing power players — modern-day boyars of sorts: Vladislav Surkov and Igor Sechin. …

The first clan is under Surkov, Putin’s right-hand man and deputy chief of staff. Surkov is considered the mastermind behind quite a few crucial events in Russia, such as Putin’s victory in the 2004 election, the downfall of the Yukos oil empire and the hard-won victory in Chechnya. He also is considered the architect of the new Russian mindset, which focuses on the country’s resurgence onto the international stage. Surkov has proven his loyalty to Putin and is not seeking the top position himself, since his background — he is half Jewish and half Chechen — undoubtedly would prevent him from ever assuming that role. Instead, Surkov has enjoyed his spot as one of the top puppet masters under Putin.

The second clan falls under Sechin, Putin’s other deputy chief of staff, who is just as mysterious as his rival and achieved success by making Rosneft Russia’s top oil firm. …

When Putin named his successor, he chose a member of Surkov’s clan — Dmitri Medvedev; … [Putin] can turn the tide of the internal clan wars whenever he chooses. But those wars have become deeply entrenched within the Kremlin and are proving very dangerous, not only for Putin but also for the entire government and the rest of the country.

… Now [OAO Gazprom and OAO Rosneft] serve as platforms for their political backers’ agendas, with Russian President Vladimir Putin’s right-hand man Vladislav Surkov behind Gazprom and the Kremlin’s other major power player, Igor Sechin, behind Rosneft. …

A turf war over the prosecutor general’s office has been under way for more than a year. The office is one of the most coveted, since it is in charge of prosecuting everyone. … in 2006 Putin decided to shake up the role and replaced Ustinov with one of Surkov’s supporters, Yuri Chaika, who was justice minister at the time. The switch was considered a huge slap in the face for Sechin and his clan.

Sechin then declared war against Chaika, attacking him on multiple fronts, including making an attempt to absorb some of the prosecutor general’s power into the Justice Ministry. But Chaika struck back, not only arresting a group of alleged organized criminals attached to Sechin in St. Petersburg but also going after that clan’s most powerful branch — the Federal Security Service (FSB). Chaika arrested associates of FSB head Nikolai Patrushev on charges of illegally selling electronics from Asia.

Also, Surkov has defended Chaika, saying the prosecutor general is off limits in the war during the election season (after the elections, of course, all bets are off). So Sechin is now going after some of the Surkov clan’s other branches; he has had the FSB and the Investigating Committee arrest associates of Finance Minister Alexei Kudrin.

But now that Dmitri Medvedev is first deputy prime minister — and a candidate for president — and Surkov is defending Chaika, the prosecutor general knows he might be able to … create a super-branch of the government that would be the only branch with the ability to go after others legally.

Defense Wars

… In February 2007, presidential contender Sergei Ivanov surprisingly was replaced as defense minister by economist Anatoly Serdyukov. At the time, Serdyukov was placed in the role to begin shaping up the defense sector and military ranks financially … Though Serdyukov had long been close to Sechin and his clan, he did not politicize his role.


Serdyukov’s chief rival for power was the head of Russia’s state arms firm Rosoboronexport, Sergei Chemezov, who is in Surkov’s clan. … First, Serdyukov unsuccessfully attempted to rein in Chemezov’s spending, and in return Chemezov created a new defense entity, Rostekhnologii — a public entity which has started to pull much of the defense industry away from ministerial control. Rostekhnologii has some very key subsidiaries, including Avtovas in automobiles, VSMPO-Avisma in titanium, Russpetsstal in special steels and Oboronprom in helicopter and engine manufacturing — and Rostekhnologii plans to pull in firms from many other industries, including shipbuilding. …

Potential Ethnic Wars

Quite a few battles have yet to come to a head — such as the energy giants’ struggle — but another war that is being whispered about in the Kremlin involves controlling the militants in the Caucasus. Among the members of Surkov’s clan is the key to reining in the Caucasus: Chechen President Ramzan Kadyrov. [Kadyrov’s] forces only number around 15,000, but are made up of many former insurgents who became pro-Russian forces.

… Sechin also has influence in the Caucasus: his man Rashid Nurgaliyev, who is an ethnic Tatar but is considered an iron fist…

… Putin’s inner circle is in control of almost all of Russia … — but that inner circle is now tearing itself apart. …

… In the end, unless Putin can rein in the clan chaos, the two factions could break the foundation of Putin’s strong Russia.

From Stratfor’s interpretation of events, Sechin seems much less “Putin’s right hand” than an overt competitor whom Putin is constantly attempting to contain, yet whose power continues to grow.

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The Bush cut-and-run

The Bush brilliant strategic pivot/ unconditional surrender signing ceremony:

US President George W. Bush said on Monday he supported Russian shipments of nuclear fuel to Iran for civilian power, saying they proved that Teheran has no need to enrich uranium.

“If the Russians are willing to do that, which I support, then the Iranians do not need to learn how to enrich. If the Iranians accept that uranium for a civilian nuclear power plant, then there’s no need for them to learn how to enrich,” Bush said

Iran received the first shipment of nuclear fuel from Russia on Monday for its Bushehr reactor, the official Iranian news agency IRNA reported.

Russia has been assisting the Iranians in the construction of the nuclear power plant.

The 2005 agreement under which Russia agreed to supply nuclear fuel for Bushehr included a clause that requires Iran to return the spent fuel to prevent any possibility Teheran would extract plutonium from it to make atomic bombs.

“All fuel that will be delivered will be under the control and guarantees of the International Atomic Energy Agency for the whole time it stays on Iranian territory,” the Russian Foreign Ministry said in a statement Monday. “Moreover, the Iranian side gave additional written guarantees that the fuel will be used only for the Bushehr nuclear power plant.”

Iran contends the reactor operation in the southern Iranian town of Bushehr is strictly for civilian purposes, but some critics suspect Teheran intends to use the plant as part of an alleged effort to develop nuclear weapons.

Construction at Bushehr had been frequently delayed. Officials said the delays were due to payment disputes, but many observers suggested Russia was also unhappy with Iran’s obstinate resistance to international pressure to make its nuclear program more open and to assure the international community that it was not developing nuclear arms.

Russia announced last week that its construction disputes with Iran had been resolved and said fuel deliveries would begin about a half year before Bushehr was expected to go into service.

An Iranian official said the Bushehr plant was 95 percent complete and would begin operations “next year.” He indicated the reactor needed 80 tons of nuclear fuel during the initial phase of operation, but did not provide further details.

Bush reiterated his belief that Iran was a danger as long as it continued to enrich uranium, and pointed to the recent US National Intelligence Estimate which determined that Iran had been running a covert nuclear weapons program until 2003.

“If somebody had a weapons program, what’s to say they couldn’t start it up tomorrow? Since they tried to hide their program before, how would we know?” he said.

Bush said that Iran was heading down a path of isolation, adding that a new round of UN resolutions was approaching. “If they [suspend their enrichment programs], there is a way forward for them that is different from the path they’re headed down now,” he stated.

Either Bush effectively surrendered Iraq, or American Mideast policy is returning to its Cold War roots, with Saudi Arabia and Iran as the twin pivots of our regional power structure.

Or maybe the Iranians will decide for themselves which one it will be, whenever they feel like deciding. And in the meantime Bush can pretend he’s a diplomatic genius.

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Russia has delivered its first shipment of nuclear fuel to a reactor it is helping to build at Bushehr in Iran, Russia’s foreign ministry has said.

The two sides reached agreement last week on a schedule to finish building the plant after years of delays.

Some Western countries fear Iran is trying to build nuclear weapons but Tehran says its programme is peaceful.

The UN Security Council has already imposed two sets of sanctions on Iran for refusing to stop enriching uranium.

Enriched uranium is used as fuel in nuclear power stations. When it is more highly enriched, it can be used to make nuclear weapons.

The nuclear fuel delivery should allow Iran to stop enriching its own uranium, the ministry said in a statement.

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Russia and Iran have agreed a schedule for finishing building the Bushehr nuclear plant, reports from Russia say.

“Difficulties with the Iranian client are resolved and we have agreement on the timetable for construction,” said the state contractor, Atomstroieksport.

The company’s president said details would be released later this month.

Work by engineers on the plant has been dogged by delays. Russia says Iran is behind on payments, but Iran says work has been stalled for political reasons.

The US and its European allies on the UN Security Council have been pushing for tougher UN sanctions because of Tehran’s refusal to end uranium enrichment.

However, correspondents say last week’s US National Intelligence Estimate on Iran, which said the country had halted its nuclear weapons programme in 2003, has raised questions about the need for new measures.

Fuel delivery

Iran’s nuclear programme began in 1974 with plans to build a nuclear power station near the south-western port of Bushehr with German assistance.

The project was abandoned because of the Islamic revolution five years later, but revived in 1992 when Tehran signed an agreement with Russia to resume work at the site.

There are two pressurised water reactors at the site, one of which is reportedly near completion and likely to be the first major Iranian reactor to go on stream.

Speaking shortly before the Russian and Iranian foreign ministers were scheduled to meet in Moscow, Atomstroieksport president Sergei Shmatko announced that the two countries had agreed to complete building the $1bn (£490m) plant at Bushehr.

“Difficulties with the Iranian client are resolved and we have agreement on the timetable for construction. I shall call it more precisely at the end of December,” he said.

Mr Shmatko said the controversial delivery of nuclear fuel, after which the plant could begin operating within six months, would go ahead, although he again did not say when.

“We absolutely, definitely intend to build the Bushehr atomic power station and intend definitely to deliver the fuel to the plant,” he stressed.

He also raised the prospect of a joint Russian-Iranian venture to “ensure security” at the plant, the RIA-Novosti agency reported.

Keep your eyes on the Israelis … especially in days following 4-5 percent increases in the price of oil.

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Via the London Times:

Dmitri Medvedev was anointed yesterday by Vladimir Putin to succeed him as President in a carefully choreographed announcement that demonstrated Mr Putin’sgrip on power and completely wrong-footed Kremlin-watchers.

“I have known him for more than 17 years, I have worked with him closely all these years and I completely and fully support this candidacy,” Mr Putin declared on state television.

Mr Medvedev, 42, who is Russia’s first deputy prime minister, had long been seen as Mr Putin’s protégé and heir apparent after he was summoned from St Petersburg to work in the Kremlin. His star had faded in the past year as his hawkish rival Sergei Ivanov, who shares Mr Putin’s KGB background, became increasingly dominant.

Russia’s stock market reached a record high after the announcement. The endorsement of Mr Medvedev all but settles the presidential contest before it has even begun, despite repeated assurances from Mr Putin that there would be no handpicked successor and that voters should have a choice of qualified candidates in the election in March.

Mr Putin, 55, underlined the inevitable success of his choice by allowing it to appear that four political parties had asked him to support Mr Medvedev’s candidacy. They included the pro-Putin United Russia and Fair Russia, which took 72 per cent of votes between them in the parliamentary elections last week.

His endorsement is critical because opinion polls have consistently shown that as many as half of voters would back whoever he chose to succeed him. The full resources of the Kremlin machine will now be used to deliver massive public support for Mr Medvedev, while crushing any opposition challenge.

… Mr Medvedev’s selection threw calculations about Mr Putin’s own future into disarray, however. He cannot stand for a third consecutive term, but the emergence in September of Viktor Zubkov, 66, as Prime Minister had been seen as a device for Mr Putin to get around the constitutional ban by supporting an elderly placeman for a few months before returning as Kremlin leader.

Mr Medvedev, however, is younger than Mr Putin was when he became president in 2000. A successful first term would give him every expectation of a second, by the end of which Mr Putin would be 63.

Mr Medvedev comes from the Kremlin’s liberal wing and Mr Putin’s support signals a clear defeat for the hard-line military and former KGB faction, the so-called “siloviki”, that backed Mr Ivanov.

… Mr Medvedev, who trusts his mentor completely, would present a moderate, civilian image to the world as president, while focusing on improving the quality of life at home. Mr Putin would retain control over security issues to pacify the “siloviki”, while dispensing fatherly advice to his young successor as an elder statesman.

… Some critics refused to rule out the prospect of Mr Putin returning. Vladimir Ryzhkov, a liberal politician, said: “If Putin wants to gradually leave power, Medvedev guarantees him comfort and security and will continue to listen to him. If Putin wants to return in two, three years . . . Medvedev will be the person who will without a doubt give up the path for him.”

Stratfor says that Medvedev’s appointment is Putin’s reward to Vladislav Surkov, Putin’s supposedly half-Jewish/ half-Chechen right-hand man. Thus, it’s a rebuke to Igor Sechin, who has been destabilizing Putin’s oligarchic circle in order to pay massive debts incurred when Sechin’s corporate behemoth Rosneft seized control of Yukos Oil.

In any case, it’s a pleasantly surprising Christmas present for investors in Russia. It implies that Putin wants to hover in the shadows, controlling the increasingly out-of-control and disputatious security services himself, while giving a liberal he trusts some measure of authority (but hardly too much to ever threaten Putin).

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It could well be that the Washington anti-war with Iran/ anti-neocon faction has simply gained Bush’s confidence at the expense of Cheney and some Pentagon elements, and Bush has effectively thrown the last vestiges of neocon power under the bus. Rumsfeld’s Secdef replacement, Robert Gates, is no war hawk. Neither are Admirals Fallon and Mullen. Nor is Condi Rice. So Bush–after four years–could have just changed his mind, and tacitly admitted that the last four years were effectively wasted.

That could all well be. I didn’t, and still to a lesser degree do not, believe that to be the right thing to do, and I don’t think it’s in Bush’s nature, either. But now that the selectively declassified NIE has made American policy look profoundly stupid and misguided, there’s no way Bush can go to war with Iran. The US has unconditionally surrendered its only bargaining chip with Iran over Iraq–the threat of escalation. Iran, with its superior regional knowledge, can slow-bleed the American occupying forces to death until it gets what it wants, but as long as Bush was seen as angry, reckless, and committed enough to escalate, there was a large political minority within Iran that favored reaching an accommodation over Iraq. That position is no longer tenable within the context of Iranian politics, because a Bush escalation is no longer plausible.

Unless the Iranians will now be good-faith negotiating partners, irrationally winding down hostilities even as they have everything to gain and nothing to lose by consolidating their control over southern Iraq, this concedes defeat. Whoever chose to author, publish and disseminate this NIE–whether Bush or bureaucrats in revolt–it is a repudiation of the last two years of Bush policy. The surge has failed. Sunni Iraq is on Arab life support, and Kurdistan enjoys US support and patronage, but Shiite Iraq will be lost and it will be lost to Iran.

The Republican Party has failed so totally by its own merits that it defies belief. With all the spending, all the entitlements, all the broken promises . . . now the raison d’etre of Bush’s last four years has been repudiated. What a total waste. So Nixonian.

In any case, the “rebels” / new Bush favorites have assured that Israel’s influence over US foreign policy will never be the same again. That will be a fantastic development. Israel is the epitome of a warfare-welfare state, especially given how much of its budget comes directly from the US, and how much nonmonetized aid the Israelis get from American activities in the Mideast. However, I just don’t believe surrendering Iraq was a prerequisite to saying “no” to everything Israel wanted.

US international credibility in dealings with Europe and other major powers, on any collective-action issue, is shattered. Over. Done. Two weeks ago, Bush was telling everybody to tremble in fear over an Iranian nuclear program; now he says there isn’t one. As of four months ago, the intelligence establishment supposedly said the same thing.

Regardless, other actors are making their own unilateral moves.

Hezbollah-Damascus-Teheran, and Moscow, have anticipated that Israel will begin acting unilaterally to protect its regional interests, starting with attacks on Syria and Lebanon. A Russian carrier battle group is steaming to the eastern Mediterranean, presumably to discourage Israeli attacks on Syria. According to Stratfor, Hezbollah, with overt Iranian aid, has militarized southern Lebanon in anticipation of an Israeli assault, and the Israelis have authorized settlers to invade/’settle’ Palestinian lands there. Pro-Western figures in Lebanon, Stratfor also says, have been receiving notes indicating that Syria will be back, and that they are strongly encouraged to: 1) shut up and figure out how to live with it; or 2) commit suicide.

It’s pretty clear that nobody in the region expected this, and that it’s obviously a US cut-and-run. Everyone who depended upon US power to ultimately back their actions now understands that he made a profoundly stupid investment.

If Israel attacks–which, if Israel is ready, would almost certainly be in its interests–it will have to move very soon, before any Russian ships arrive.

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Radio station Ekho Moskvy cited sources in the Belarusian presidential administration that Putin would be the head of the union state, and Belarusian President Alexander Lukashenko parliamentary speaker.

“This comes from the realm of speculative fantasies,” a Kremlin official said. “Such reports can only provoke surprise.”

Putin’s term as Russian president is set to end in three months, and he has repeatedly said he will not run for a third consecutive term in violation of the Constitution. But Putin has pledged to retain influence in Russia politics. Various theories have been circulated in domestic and international media as to what position he could opt for after the presidential polls in March 2008.

The popular radio station also said Putin would visit Belarus on December 13-14 to sign an agreement proclaiming the emergence of the union state, with common laws, currency, government, state symbols and armed forces.

The ex-Soviet neighbors have been in talks since 1997 over building the union state, but the negotiations have been complicated by a host of issues, including energy and financial disputes.

Russia’s parliamentary speaker and leader of the ruling party United Russia, which won a landslide victory in Sunday’s polls, earlier said Russia and Belarus could sign the agreement after the parliamentary elections in Russia, held on December 2.

“The union state must be established. This is what our nations want,” Boris Gryzlov said.

The union’s Parliamentary Assembly adopted a joint 2008 budget in November totaling about 5 billion Russian rubles (about $200 million). In 1999, the budget was 500 million rubles.

Belarus has been effectively subservient to Moscow for years, but it’s nearly time for map makers to erase the official border between the two.

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via ; here’s the BBC version

Russia: A Naval Move to the Mediterranean
December 05, 2007 21 50 GMT


The Russian navy is deploying to the Mediterranean. Unlike past rumors on the issue, this is a declaration that comes directly from the defense minister who was speaking with the Russian President Vladimir Putin at the time. …


Russian Defense Minister Anatoly Serdyukov announced Dec. 5 that the Russian navy was deploying a task force containing four warships, seven support vessels, 47 planes and
10 helicopters to the Mediterranean Sea. The task force will be on station until February 2008. …

At almost the exact same time, Mahmoud Ahmadinejad indicated that he didn’t get the NIE memo about a four-years-dormant nuclear program.

President Mahmoud Ahmadinejad said Iran needs 50,000 centrifuges to supply fuel for one year to a power plant.

In a meeting with war veterans here on Wednesday, Ahmadinejad said, “When we commissioned 164 series of centrifuges, the ill-wishers told us to stop there and that they would ignore it, but “we said we need 50,000 centrifuges to supply fuel for one year to a power plant.” The president said Iran continued industrial production of nuclear fuel in spite of ill-wishers’ will.

On the possible issuance of a new resolution at the United Nations Security Council against Iran’s peaceful nuclear activities, the president said, “Our nation do not fear such threats.”

It doesn’t exactly reek of a “grand bargain” between the United States and Iran.

See also:

Regarding Stratfor, US intelligence, and National Intelligence Estimates

NIE fraudulence, continued

The UK demands further UN sanctions, tacitly repudiating the NIE; meanwhile, Chinese banks have frozen credit lines with Iran.

This quote from a Chinese official says it all, I think.

Yang Jiechi, China’s foreign minister, would not be drawn on Wednesday to make any judgment of the US intelligence assessment of Iran’s nuclear weapons’ programme, but he did have a gentle dig at the lack of co-operation between agencies in Washington, writes Quentin Peel.

“Maybe I should not say this, but I do feel that close inter-agency co-operation is a big advantage that China has,” he told an audience at Chatham House in London. “It is a strong point – in comparison with some other countries.”

He said China had a consistent position on Iran, insisting on safeguarding the nuclear non-proliferation regime, but recognising Tehran’s right to the peaceful use of nuclear energy.

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The latest National Intelligence Estimate, the compilation of assessments from the 16 US public intelligence agencies, includes the surprising assertion that Iran’s nuclear program has been effectively dormant since 2003.

Stratfor, a geopolitical risk consulting firm that relies on professional-intelligence “word on the street” and efficient use of open source information (which btw, for the money, is by far the most insightful, current analysis of political risk around the world, especially re: Iraq), has interpreted this to mean that American-Iranian negotiations have turned a corner. As I have argued in recent posts, I believe recent events contradict Stratfor’s interpretation. Stratfor appears to be making the same misjudgments it made in the run-up to the Petraeus report on September 7, 2007.

Many people hold the intuitive, but completely false, presumption that US intelligence agencies are unblinkingly loyal servants of the President. The CIA, and some other segments of the intel community, have actively undermined Bush since the run-up to the 2004 elections. However, with the near-treasonous (and still anonymous) leaking of the SWIFT program to the NYT in the summer of 2006, at least a minority within the intelligence community dramatically escalated their opposition to Bush.

George Friedman, Stratfor’s CEO, was quick to note the significance of that event. But the degree of open rebellion on the part of US intel agencies did not seem to make a lasting impression on him.

[October 03 2006] Now, this may not be a fair perception. We are not in the White House and do not know what is going on there. But this is now the perception, and that fact must be entered into the equation. True or not, and fair or not, the president appears to be denying what the intelligence communities are saying and what some of his closest advisers have argued, and it appears that this has been going on for a long time. …

[August 24 2007] A new National Intelligence Estimate (NIE) on Iraq was issued Thursday. It made grim reading. …

The strategy of the United States has been to use its forces to create a security environment in which a stable, pro-American government could be created in Baghdad and assume the responsibility for internal security using Iraqi forces under its command. The NIE is essentially stating that that strategy has been a failure. …

It is hard to imagine that the much-awaited report from Gen. David Petraeus, scheduled to be released Sept. 15, is going to read much different. If it does, it will create an interesting situation in which the military and the intelligence community are deeply split. …

[August 30 2007] Between leaks and already released National Intelligence Estimate reports, it is clear the surge has failed to achieve meaningful changes in the military situation on the ground.

… On Sept. 15, Petraeus will present his assessment of the surge’s progress to the U.S. Congress. All political developments in Iraq and the United States for the past several months have been building to this moment, and the report will be influential. It will not, however, be a surprise. Between leaks and already released National Intelligence Estimate reports, it is clear the surge has failed to achieve meaningful changes in the military situation on the ground.

In approximately two weeks, the U.S. military and intelligence community will be in public agreement that the Bush strategy has failed and is irrecoverable. That means that very soon the Bush administration will need to face down an emboldened and hostile Congress flirting with stripping away some presidential powers, an angry and disaffected public tired of the war, a force structure in Iraq that is telling Bush that things must change, and an Iran champing at the bit to pick up whatever pieces the Bush administration drops.

As things turned out, Petraeus did contradict the leaked segments of the 2007 NIE. Stratfor’s prediction, though well reasoned, was incorrect.

Fast forward to today:

There is speculation arising that the latest National Intelligence Estimate (NIE) report stating that Iran had halted its nuclear weapons program in the fall of 2003 is part of a campaign launched by individuals in the U.S. intelligence community to sabotage … Bush in dealing with Iran.

Such an incendiary action would only take place if the Bush administration were seriously planning military action against Iran. …

However, Stratfor highly doubts this to be the case … Instead, the release of the NIE is more likely linked to the larger negotiations taking place between Iran and the United States.

Such an action would hardly be “incendiary” by the standards of the intelligence community. The intelligence community’s unhappiness with Bush’s foreign policy is no secret, and their previous NIE, in retrospect, was an attempt to alter the trajectory of Bush’s Middle East policy. Moreover, the spate of assassinated Iranian scientists, culminating with the Mossad assassination of Ardeshir Hosseinpour (a story first confirmed by Stratfor), combined with the Israeli bombing of Syria–Iran’s main Mideastern ally–on Sept. 6, 2007, and other activities by Iran’s Gulf neighbors, all argue that Iran’s neighbors take the possibility of Iranian regional hegemony much more seriously than America’s politicized intelligence establishment does.

Additionally, the judgment that Iran has a fully operational nuclear program is not some kind of right-wing fringe idea. We are living in truly bizarre times when when France’s Foreign Minister (a capital-S Socialist) favors sanctions on Iran over its nukes, the Guardian and the United Nations both take an Iranian nuclear program very seriously–whereas the US intelligence establishment says it’s been dead for 4 years. [*] As the Guardian says:

Iran has installed 3,000 centrifuges for enriching uranium – enough to begin industrial-scale production of nuclear fuel and build a warhead within a year, the UN’s nuclear watchdog reported last night.

The report by Mohamed ElBaradei, director general of the International Atomic Energy Agency (IAEA), will intensify US and European pressure for tighter sanctions and increase speculation of a potential military conflict.

The installation of 3,000 fully-functioning centrifuges at Iran’s enrichment plant at Natanz is a “red line” drawn by the US across which Washington had said it would not let Iran pass. When spinning at full speed they are capable of producing sufficient weapons-grade uranium (enriched to over 90% purity) for a nuclear weapon within a year.

And US intel says there has been no Iranian nuclear program for 4 years? That even contradicts what they themselves said in 2005.

Even if the NIE’s latest declaration (that Iran stopped its nuke program in 2003) is true, it strips Bush of crucial leverage–a realistic avenue towards marketing a war–in his dealings with Iran. The United States is not as worried about Iranian nukes, but Iranian fingerprints are all over most of the violence in Iraq. Any effort to market retaliatory strikes on Iran to the public would center around Iranian pursuit of nuclear weapons, rather than merely accusing Iraq of supplying Iraqi insurgents. Thus, even if the NIE’s statement is sincere (I don’t believe it is), there is no reason to say so yet, unless 1) US and Iran have already reached behind-the-scenes accommodations (what Stratfor thinks); or 2) the intelligence establishment were genuinely fearful of the possibility of a Bush escalation.

Considering that once US intelligence spikes the possibility of public support for an escalation, Bush loses his best card, one would think that a declaration of this sort would come only after public, concrete steps to wind down hostilities. Considering that the Europeans are puzzled at what a ‘disaster’ their most recent talks were, Ahmadinejad has consolidated political control, and Russia is as strong as ever, such a move on the part of the US government would seem highly premature. At the same time, NIE politicization at Bush’s expense is a time-honored tradition of the US intel establishment.

As for the notion that “the costs would be too high” if America bombed Iran, it all depends on the time horizon one chooses. If Ahmadinejad is seen as in unalterable control over Iran, over a long time horizon, the United States must either take the battle to Iran or concede Iraq.

Additionally, there was a huge spate of leaks, such as this one, to UK media in February-March 2007 (around the beginning of the surge, coincident with the assassinations and assorted intrigue) suggesting that British generals were violently opposed to a planned American escalation of the war (granted, it could well have been to psych Iran out). And Ahmadinejad’s kidnapping of 15 UK sailors (remember that?). And the March 6, 2007, defection of Iranian Deputy Defense Minister Ali Reza Askari to either Israel or the United States.

Also note that the UK forces were wound down rapidly, with a glaring “no comment” from the Americans, beginning after the return of the UK hostages.

The only window to success in Iraq is through bombing Iran. I believe the aggregate of open-source evidence indicates a powerful unanimity within the Pentagon, on the one hand, for escalating the war to include overt airstrikes on Iran, and antiwar unanimity on the other hand among the US intel community. I believe that the latest NIE is a more unanimous effort by the US intelligence community to sabotage the potential marketing of a war with Iran, and thus sabotage Bush.

Btw, it’s telling that about 15 minutes after Stratfor posted its initial “NIE suggests imminent detente with Iran” interpretation, they felt compelled to note speculation that the effort was aimed at undermining Bush, and as such indicated nothing about “larger US-Iran negotiations” at all. I’m not alone out in left field with that hypothesis.

[*] Potentially incendiary news to the American public, e.g., implying that Iran has WMD that must be taken out (and thus war is coming), has a funny habit of being leaked in UK media before being published in American publications… which is one reason why I pay a lot more attention to UK media than US media.

Update: This makes the oil trajectory completely uncertain. I wasted enough time watching DC to know a strategic leak by a hostile bureaucracy to stall policy movement when I see one.

In previous instances, President Bush simply ignored the NIE. In 2005, when the NIE implied that Iran was the only country with WMD potential (though it was 5 years or so off–thus insinuating that Bush had bumbled into the wrong country in his WMD search), Bush shrugged it off, and nothing happened. In 2006, the NIE leaked 6 weeks before the midterm election said that Iraq was a failure, and it had made terrorism worse. Then, kind of hilariously, Bush lost the election–but acted as if he had just woken up from a coma a couple of days after the election was over, and ratcheted up the pressure on Iran still more, via the surge.

This time, it’s going to be a tougher sell, just because as Bush’s time horizon in office is diminishing, so too is the bureaucracy’s willingness to obey him. However, on the other hand–and this is an extremely subjective call on my part–the intelligence agencies have been badly discredited through all this, and the Pentagon wants a war very badly anyway, so perhaps Bush will be able to steamroll this one just as he has the previous NIEs.

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Creepy miscellany

Russia: Nashi Plans To Distribute Fliers
December 03, 2007 13 46 GMT

The Russian pro-Kremlin youth movement Nashi is planning to distribute fliers Dec. 3 that accuse the United States of plotting to incite ”thieves and traitors” across Russia to revolt, the group’s organizers said Dec. 2. The leaders added that they are mobilizing against the threat of a Western-inspired rebellion in the wake of the parliamentary victory of President Vladimir Putin’s party. Rebels allegedly will attempt to seize squares and buildings before Dec. 6, when the official election results are expected to be announced.

Nashi is a huge youth organization with over 100,000 members. They are completely owned by the Kremlin, and when they do nationwide mobilizations like this, (Stratfor seems to think that) something significant is going on.

There are certainly many extremely rich Russians who would love to see Putin killed, but their popular support is vanishingly small.

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My money is on 50 basis points at the Fed’s December meeting. Contrary to the now red-faced predictions of the GaveKal crowd, inflation, even by their favored indicators, has not abated, despite the total chaos in the private market for loans. Inflation is still accelerating, according to CPI-U, PPI, and chained PCE, the three big inflation indicators.


Source: Cleveland Fed

While I expect the dollar’s cratering to reflect itself in higher inflation going forward (loss of value of a currency is inflation, after all, and if markets are efficient, the forex change will ricochet its way down through all other prices), eurozone inflation is at a 6-year high. The ECB is in no position to cut rates. However, stresses on the Euro union have become very acute, especially among the “PIGS” (Portugal, Italy, Greece, Spain), plus France and Belgium, which do not fit so well into the acronym. Belgium has not even had a government for six months. Italy’s presidency and half its cabinet ministries are controlled by communists (yes. Communists.) However, the ECB and the Bank of England appear determined to hold their rates steady. My guess is that the ECB will ultimately acquiesce to 4-6% inflation in order to keep the union glued together.

The euro is currently undergoing its first existential test. The Fed’s depreciation of the dollar (to which the Chinese yuan is pegged), while not changing the balance of Chinese-US trade, has dramatically widened the euro-yuan differential. Chinese exports are flooding into Europe and crushing the lower-end “Club Med” (PIGS plus France). As evidenced by the explosion in spreads of French and PIGS bonds over German bunds, the market has begun to price in the possibility of a fracturing of the eurozone.

Meanwhile, the Chinese government is dealing with massive inflows of liquidity.

The PBoC has not only to mop up an expected $30-40 billion of foreign currency inflows every month, a Herculean task as it is (October’s reserve increase was $21 billion, probably low because of transfers to the CIC, but it has averaged $39 billion a month in 2007), but it must add to the mop-up the maturing of a substantially larger amount of maturing central bank bills during the next four months.

But there’s more. Wright argues that the maturing of repurchase agreements will add another RMB 250 billion over the four months, bringing the total amount of money entering the system to nearly $60 billion a month, not counting the PBoC purchase of net foreign currency inflows, which could mean managing $80-100 billion a month of new liquidity. In addition the recent amount and structure of fiscal revenues will add to the liquidity far more than it normally does. Wright explains:

Fiscal revenue is sky-high this year, up from last year’s total of 3.87 trillion yuan to an estimated 5 trillion yuan this year, according to a report from Yao Jingyuan, chief economist of the National Bureau of Statistics, cited in the Shanghai Securities News on November 26. The targeted revenue level was 4.4 trillion yuan.

Fiscal revenue went up from RMB3.9 trillion to RMB5trillion. That’s a 27.5% increase in one year.

Taxes are a good “floor” for economic statistics. People do everything they can to avoid taxes, so if taxes go up by a certain amount, you can bet that, all else being equal, liquidity rose by about that amount. That’s simply a staggering increase.

The Chinese government is facing extremely high domestic inflation. Bernanke, by depreciating the dollar, has effectively raised the price of Chinese currency policy and raised future Chinese inflation. Chinese monetary authorities, especially Zhou Xiaochuan, see an RMB revaluation as urgent (if not extremely so), but China’s regional economies are completely addicted to artificially cheap currency. A one-off 20 percent revaluation would probably see the collapse of tens of millions of jobs’ worth of businesses, which would probably stoke as much domestic unrest as exponentially increasing inflation. Politically the Chinese do not seem able or willing to revalue their currency, even as Bernanke has turned the screws.

Six months ago, I would have said that the dollar or the yuan needed to break. Today, the same either/or applies to the yuan and the euro. Until one of those break points occurs, the global financial party will go on. The euro cannot carry the weight that the dollar did, because European manufacturers will not stand for it. But for a while, the euro will be “the overvalued currency” which the dollar was in 1998-2005.

I expect all asset classes, especially metals, oil, gold and Chinese equities, to reflate until that break point occurs–which would be signalled by either 1) a widening of Italian, Belgian, Greek and/or Portuguese (probably Italian) bond spreads to over 80 bps over German bunds, the precedent for a eurozone breakup; or 2) in the case of China, massive and coordinated riots over food or fuel, both of which have been aggressively rationed to hold down official inflation numbers.

I expect the dollar to generally continue skidding downwards, and I believe a sudden rise of dollar will be the canary in the coal mine for a crackup in either the eurozone or the Chinese bubble.

I see oil as especially prone to another spike, because of geopolitical factors. As I have noted in previous posts, Russia (which is heavily invested in prolonging Mideaster turmoil) will begin the countdown to war with Iran if it delivers nuclear fuel to Bushehr. Even though these kinds of impending crises are almost always muddled through, local factors make that less likely, and the significant rise in the probability of war will severely rattle the oil market.

The bottom line is that there’s a worldwide inflation glut: even Japan is recording meaningful inflation (from fuel costs), and the thinking is that Japanese competition is causing a lot of Japanese companies to eat price increases instead of passing them on to consumers. If you compensate for that, even Japan is experiencing accelerating inflation.

In the medium term, states with large cash reserves will become increasingly uncomfortable with the value of said cash as Bernanke insanely continues to plunge rates to bail out the US financial industry. Cash hoarders will continue converting into gold, with Russia leading the way.

I am bullish on the commodities currencies, still–especially the ruble. But why buy the paper when you can just buy the underlying commodity itself and not have your asset stolen from you.

I think equities can’t do too badly in an inflationary environment, especially exporters. (Note that the GM/F/Chrysler liabilities will depreciate more as inflation rises, and as the value of the dollar goes down their exports will rise significantly). However, I also think equities markets will have this jittery “recession just around the corner” mentality, as worldwide inflation and pain aversion keeps the world economy on the cusp of a bubble that theoretically is only about three central bank decisions away from being popped.

Also, there is a long stream of bad news from the banking sector on the way, and that has a big multiplier effect on other sectors. Bernanke is obviously scrambling the helicopters to carpet-bomb the banks with money as fast as he can, but the banks’ problems are (I believe) far beyond Bernanke’s power to help, and the problems will get worse in light of the recent “mark to reality event” at E*Trade. Mike Shedlock explains:

Financial analysts on Friday said E*Trade got anywhere from 11 cents to 27 cents on the dollar for its $3.1 billion portfolio of asset-backed securities. The portfolio sale was part of a $2.5 billion capital infusion from a group led by hedge fund Citadel investment Group.

“The portfolio sale, one of the few observable trades of such assets, has very clear, generally negative, implications for the valuation of like assets on brokers’ balance sheets,” Credit Suisse analyst Susan Roth Katzke said.

Citigroup investment bank analyst Prashant Bhatia said E*Trade actually received 11 cents on the dollar for its portfolio, if you factor in that the brokerage received $800 million in cash minus 85 million shares it issued. He said that implies Citadel’s received stock compensation worth about $450 million, leaving E*Trade with only $350 million for its $3.1 billion portfolio.

Goldman Sachs analysts said they were surprised by the size of the discount on the E*Trade portfolio because 73 percent of the assets were backed by prime mortgages, or loans to people with solid credit.

While admitting using simplistic analysis Credit Suisse analyst Susan Katzke estimates the following writedowns based on what happened at E*Trade, assuming pricing at 26 cents on the dollar.

  • Merrill Lynch (MER) could take a $9 billion after-tax hit to the valuation of assets underpinned by subprime mortgages.
  • Citigroup’s (C) after-tax write-down could be $26 billion.

Note that in reference to Merrill Lynch, Susa Katzke said $9 billion was related to subprime. Note that 73% of E*Trade’s portfolio was prime. That is quite a haircut on so called prime paper.

And I think bonds are going to get hammered. Bloomberg notes that yields on 10-year Treasuries are practically even with consumer price inflation, and also notes the widespread skepticism that those numbers are rational and justified. Inflation has not abated at all, and in light of that, bonds are not going to represent safety.

So basically, I’m bullish on gold.

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Putin is now Russia’s dictator for life.

Apparently it is now understood by Western media institutions, from the BBC all the way to FrontPage Magazine, that Vladimir Putin embodies the Great Satan, and that today’s “KGB, Inc.” Russia is basically the same kleptofascist empire that reigned behind the Iron Curtain from 1945-89. That’s pretty ridiculous. But you wouldn’t know the half of it from reading UK media, which have been pathetic shills for exiled Russian oligarchs. (Many Russian oligarchs relocated to the UK because of tax quirks, and now form a powerful political lobby on their own.)

I strongly believe that democracy does not work in all, or even most places in the world.

The various tribes and factions of the United States have pretty homoskedastic distributions of trust or mistrust between one another. The variances of everybody’s hatreds for everyone else are fairly constant. Every tribe/faction can predict, within a certain range, what every rival political actor, even the one(s) the faction fears and loathes the most, will do. Nobody will be particularly surprised by any political action effected by any other actor.

This predictability is what allows democracy to work. Every tribe is a “responsible stakeholder” in the national system, and the costs of opting out are so high that its likelihood equals zero.

In Russia, that was not the case. The free-for-all 1990’s demolished Russia’s economy. The Jeff Sachs “shock treatment” was a complete disaster, and paid no attention whatsoever to huge gaps in trust among different parts of Russian society. The result was a gangsterist bloodbath.

(The exact same thing happened in Iraq, by the way. If there was one needless blunder of the Iraq occupation, it was ripping the pre-existing economic infrastructure apart, and assuming that a free-market economy would just spring up from the ground. Bremer and Co didn’t realize that the Baathist framework had evolved around pre-existing mutual distrusts within Iraqi society. Post-2003, people were expected to deal with other tribes and counterparties on a trusting basis, as if 1000 years of mutual ethnic cleansing had never happened. The Iraqis often didn’t trust their neighbors, and instead of interacting with neighbors according to free-market theory, they slaughtered each other for four years. It’s Chechnya, but 10 times bigger, and only after copying Russian tactics in Chechnya have the Americans gotten the occupation back on track.)

In such ethnically factionalized, mutually distrusting climates, dictatorships are a much better form of government. In Russia’s case, it has worked very well.

Putin has killed a lot of people. But he hasn’t killed as many people as Yeltsin’s “Family” did. He has godfathered a capitalistic service economy around a monopolized commodities sector. Russian oligarchs have done obscenely well in this commodities bull market, but the lot for most, if not nearly all Russians has improved significantly, as well. The concentration of political power in the hands of Putin and his two lieutenants, Igor Sechin and Vladislav Surkov, and a wider circle of commodities oligarchs has dramatically reduced economic and social volatility.

Volatile times call for ruthless people. Putin is an “evil” man in a much more evil domestic climate.

Western luminati, who try to impose Western political frameworks upon completely alien polities, are false doctors peddling promiscuously prescribed misery.

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France: No Decision On Iran Sanctions
December 01, 2007 2016 GMT
World senior officials could not reach a decision on new U.N. sanctions against Iran over its nuclear activities at a Dec. 1 meeting in Paris, because Russian Deputy Foreign Minister Sergei Kislyak was unable to fly to the meeting due to weather, Reuters reported. The meeting comes the day after EU envoy Javier Solana met with Iran’s top nuclear negotiator, in talks Solana called “a disaster.

In contrast to gold, I have been bearish on oil for an expensively long amount of time. Once oil showed strength above about $70, I figured that deflation of the oil bubble was only a matter of time. Oil can be profitably extracted from tar sand, with acceptable reward for risk, at a price of $40/barrel, and Alberta is the Saudi Arabia of tar sand.

If the price of oil endures above $70/bbl, I surmised, it was only a matter of time before a surge of investment raised oil supply, and brought oil prices back down to $40/bbl.

A long time after the $70 mark, oil prices have finally receded 10 percent, to just under $90/bbl. OPEC has made noises about increasing supply, and the Mideast appears much more tranquil than it did on September 7, after Israel had bombed Syria.

However, Russia is massively invested in Mideastern chaos and has given every indication that it will shatter the consolidation of Mideastern geopolitical volatility, as well as oil prices.

Ahmadinejad has been demanding to strike while the iron is hot. He is not facing potential impeachment as he was in early 2007, when Iran was experiencing soaring inflation, Iranian lead nuclear scientist Ardeshir Hosseinpour had been assassinated by the Mossad, and Bush’s surge had raised the stakes. Ahmadinejad’s political faction was discredited by this series of events.

Those days are over. Ahmadinejad, as far as we can tell, is back in command of the political situation in Iran. If Putin sends the nuclear fuel to Bushehr, the atomic clock will begin ticking. Israel has stated that an Iranian nuclear bomb is absolutely unacceptable. KSA, UAE, Qatar, and Bahrain are at least as terrified of the prospect: after the Israelis bombed Syria on September 6 (and bragged about it through the London Times and other media poodles) there was absolutely no condemnation of the Israeli airstrike from anywhere in the Arab world–the first time in history that an act of Israeli aggression was not condemned by the Arab League.

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When Mideast analysts who know what they’re talking about (i.e. Stratfor) have previously gotten all giddy about prospects for peace in the Mideast, I have always had this kneejerk roll-eyes reaction. Not that their relatively pricey news isn’t worth it (far, far from it). But from my vastly less informed viewpoint, there are simply too many people invested in continuing the “stable disequilibrium” of the Iraq mess–both inside and outside the Middle East–for Mideast “peace” to be anything but an accidental, inevitably-aborted pregnancy.

For example, if Baghdad ever stopped cannibalizing itself, Kurdish independence would be jeopardized. The Kurds are probably not involved in any Iraqi sectarian problems right now, but they have 100,000 very well-equipped and well-trained soldiers. The Kurds could easily scuttle Iraqi unification if they wanted to.

The rest of our Gulf “friends” have enjoyed a half-decade windfall from oil’s “structural upward volatility” in oil prices, primed by Alan Greenspan and sparked by the Iraq war.

Ratcheting up Gulf tensions, and thus upping the perceived risk premium of oil, is easy for Iran. Sunni actors for their part tremble at the Iranians’ rise (a derivative of the Iraq mess) but they have no complaints about higher risk premia for oil, as long as it’s not their pipelines getting bombed.

Iraq has also been a godsend to the Saudi royal family, because Iraq has effectively imported all radicalized Saudi youths who would otherwise have followed in Juhaiman al-Utaibi’s footsteps. For the Saudis, although Iraq has powered international volatility by abetting the rise of Iran (bad), Iraq has soaked up the blood of every Saudi kid who would otherwise be throwing Molotov cocktails at the Saudi royal family (very good). (The best measure of supposed Saudi internal reform, btw, will be changes in the proportion of Saudis among the Iraqi body count.)

But the actor with by far the least to lose and the most to gain by sparking the Mideast powder keg is Russia. Russia is the world’s number 2 (I believe) oil exporter. It instinctively distrusts the United States on a visceral as well as a strategic level. Although it is no longer communist, Russian commodities interests (i.e. the people who run Russia) find Americans as their main competitors in global export markets, the Rusal-Alcoa rivalry being just one example.

So, the Russians have a lot of reasons to keep the Mideast on fire. Iran does too, for its own reasons. An alliance was born.

However, Soviet-Iranian relations have never been very stable. Stalin even occupied Iran in 1945, withdrawing only after the United States threatened one-way nuclear war over the issue. Iran’s current “friendship” with the Russians is very skeptical and opportunistic. Much as the Americans and Russians always, regardless of changing historical tides, find themselves fighting each other, so it is with Iran and Russia on a somewhat smaller scale.

Presumably, once the Americans are bled white enough to quit the Mideast, Russo-Iranian competition for Syria, Azerbaijan and the Central Asia ‘stans (“the Great Game”) will be the decisive factor in the Iranian-Russian relationship. It’s a lot like with Sauron and Saruman in the Lord of the Rings, with Saruman, the weaker warlord, happy to align himself with the “Great Satan,” but only to the extent that it helped Saruman.

This long-run ‘inevitability’ has manifested itself in Russia’s ‘assistance’ for Iran’s nuclear reactor at Bushehr. The Russians, who built the reactor themselves, are basically one fuel shipment away from revving up an autonomous Iranian nuclear program. Russian intelligence and armaments exporters are up to their eyeballs with the governments of Iran and Syria. However, when it comes to nuclear technology (to Iran), the Russians have been a much more capricious counterparty, constantly inventing new reasons to delay completion of the reactor. The Russians know they will lose a lot of leverage over Iran once the fuel is shipped, thus a mini-soap opera of Russian hemming, hawing, intransigence and general bad-faith behavior.

Unfortunately, the Russians are highly alarmed at the progress of American-Iranian negotiations. There is obviously a huge lobby in the United States to wind the war down in acceptable fashion. There is a large Iranian lobby, as well–even among the military, which is intricately involved in all parts of the economy. The American financial embargo of Iran has caused Iranian economic growth to be much lower, and inflation significantly higher, than it otherwise would be. The Iranian opportunity costs for ongoing hostilities are rising, if not as rapidly as for the United States.

Iran needs more concrete, long-term reasons for being a Russian proxy in the Mideast, than structurally upwardly-volatile oil prices and broken promises from the Russians over the Bushehr reactor.

It now appears that Sauron is willing to give his Saruman the ultimate ring of power in order to maintain the tempo of tension in the Mideast.


Russian President Vladimir Putin on Nov. 30 signed into law a bill that formally suspends Russian cooperation with the West on the Conventional Armed Forces in Europe (CFE) Treaty. On the same day, the International Atomic Energy Agency approved a shipment of Russian nuclear fuel for transport to the Russian-built Iranian reactor at Bushehr.

The CFE — a treaty that regulates how much conventional weaponry NATO and former Warsaw Pact states can have, and where — is the cornerstone of Eurasian security architecture. … But registering Russian displeasure with the treaty is one thing; leaving it is another.

Similarly, the Bushehr reactor — so long as it is not yet on line — is Russia’s primary lever for inserting itself into Middle Eastern events. But as soon as it goes on line, the West has no reason to engage the Russians on Iranian issues, and Iran shifts from needing tutors for its nuclear program to having the infrastructure in place to be self-taught. In the Russian mind, ending that influence could be worth the cost if it locks Iran and the United States into a protracted struggle.

The bottom line is that both leaving the CFE and making Bushehr operational are not rhetorical moves, but bridge burners that will force other powers to adjust their long-term security policies. …

Russia feels forced to take such actions because its world is quickly evolving in a direction it greatly fears. The European Union and NATO take up Russia’s entire western horizon and show few signs of being finished with their enlargements. The United States might have achieved some breakthrough in the past week on both the Israeli-Palestinian issue and relations with Iran. Simply put, things are coming to a head. …

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