Russia, U.S. ready to "reset" strategic arms treaty/ Medvedev, Obama outline promising cooperation spheres/ Gazprom threatens to switch to non-European markets/ Surgut's Hungarian purchase ends in European scandal
Russia, U.S. ready to "reset" strategic arms treaty
Russian President Dmitry Medvedev and U.S. President Barack Obama, who have held their first face-to-face meeting in London, agreed to sign a new nuclear arms reduction treaty this year. But analysts expressed doubt that this is possible.
The two presidents said a new treaty should be signed before the expiry of START-1 in December 2009. Their expert groups are to draft concrete proposals by July, when Obama is expected to arrive on his first official visit to Moscow.
START-2 is expected to outline verification mechanisms and cut the number of nuclear warheads to below 1,700-2,200, the ceiling set in the Strategic Offensive Reductions Treaty signed in 2002.
According to the U.S. State Department, the United States had 5,576 warheads and 1,198 delivery vehicles, and Russia had 3,909 and 814, respectively, as of January 1, 2009.
Pyotr Topychkanov, an analyst at the Carnegie Moscow Center, said it would be difficult to agree on new arms reductions.
"The United States is tackling strategic tasks not only with the help of nuclear weapons, but also by using precision weapons, space-based systems and the nascent ABM system," he said. "Nuclear weapons as such are of much greater significance for Russia."
In his view, the partners may each agree to cut their strategic weapons to 2,000.
Yevgeny Myasnikov, an expert with a Russian think tank on disarmament issues, said a positive element in the two president's decision is that the goal of the new agreement will be weapons cuts. This means that Washington is prepared to discuss not only the reduction of warheads, but also their delivery vehicles, as Russia insisted.
Russian Foreign Minister Sergei Lavrov confirmed the fact, saying that a new START treaty will "cover everything."
However, the joint declaration does not mention reversing cuts, and has therefore not laid to rest Russia's concerns over the so-called upload capability, or the ability to return warheads which are stored but as yet not destroyed to missiles, Myasnikov said.
It is also unlikely that the treaty will be ready by December, because the U.S. does not have a declared position on the outstanding issues, the analyst said.
Besides, the statement on strategic offensive weapons does not mention ballistic missile systems, which may mean that the U.S. has decided to keep these two issues separate despite Russia's insistence.
Medvedev, Obama outline promising cooperation spheres
The first meeting of Russian President Dmitry Medvedev and U.S. President Barack Obama was definitely a positive event, even though it did not mean a breakthrough in bilateral relations, a Russian analyst writes.
Fyodor Lukyanov, editor-in-chief of the Moscow-based magazine Russia in Global Affairs, writes that the meeting promises that there will be more common sense and reason and fewer emotions in bilateral relations.
"There are more positions that unite us than things that keep us apart," Medvedev said after the meeting.
The two leaders have agreed that they should start with questions on which their interests coincide or are compatible, and where progress is more likely. They are the talks on a new nuclear arms treaty and Afghanistan.
A mutually acceptable decision on an arms reduction treaty is quite possible and will benefit both sides, Lukyanov writes. Gradual cuts will allow the sides to get rid of the weapons they don't need and to start an institutional dialogue that entails mutual commitments, something Moscow and Washington have not done for a long time.
Besides, arms reduction talks are the only sphere where Russia and the United States can act as equal partners, which is an important psychological factor for Moscow.
According to the analyst, there are no irreversible differences over Afghanistan, because the Taliban has no friends among the leading global players. And Russia will not need to overtax itself; it will only need to assist the transit of NATO troops and cargo to Afghanistan, which is a commercially profitable business.
However, the long-term situation in Afghanistan is unclear, because the operation's objective is vague. The initial goals of the operation - to punish terrorists for the September 11, 2001 attacks at the United States and to destroy the terrorist infrastructure - were reached in the fall of 2001. Since then, the Afghan campaign has been overshadowed by U.S. concerns over Iraq.
The situation in Afghanistan now threatens to become uncontrollable, with no conditions created for the withdrawal of Western coalition troops, Lukyanov writes. Judging by changes in Washington's tone, its new objective is to establish the conditions for pulling NATO troops out of that country. This explains the attempts to establish ties with "moderate" members of the Taliban.
When the United States and NATO withdraw their troops from Afghanistan, it will become Russia's problem, although not immediately.
These two elements are the easy part of the common road the two countries intend to cover. The remaining items on their agenda are quite problematic.
Gazprom threatens to switch to non-European markets
Russian energy giant Gazprom has given its answer to the Brussels declaration, which is an obstacle to Russia's attempts to gain control over Ukraine's gas pipelines. The monopoly has pledged to increase output of liquefied natural gas for alternative supplies to the United States and the Asia Pacific region, rather than to Europe. But Gazprom is unlikely to act on this threat any time soon. In addition, the new LNG markets may not prove as attractive.
Russia was not mentioned in a declaration between Ukraine and the European Commission signed on March 23, nor did it take part in the draft process, which drew sharp protests from Moscow. "If Moscow's interests are ignored, we will also be forced to start reviewing the principles of our relations," said Prime Minister Vladimir Putin.
A Gazprom source said that the monopoly will now consider boosting LNG production for export to alternative non-EU markets - Asia Pacific countries and the U.S., but did not specify which projects he meant.
So far, Russia has only one LNG plant as part of the Sakhalin II project (9.6 million tons a year). But by 2030 the monopoly is planning to raise LNG output to 90 million tons. However, all declared projects will only be able to be implemented in four to five years' time at the earliest. LNG deliveries from the Shtokman deposit are not scheduled to begin before 2014, while the Yamal LNG plant (based on the Yuzhno-Tambeisky deposit) is just in the feasibility study stage.
Gazprom merely wants to demonstrate its displeasure over the Brussels declaration, says Konstantin Cherepanov, from KIT Finance. Theoretically, the monopoly could easily revise its LNG strategy. But the analyst is confident that Gazprom will not in any case risk long-term European contracts.
The source repeated that all plans to make deliveries through existing pipelines and to construct new lines, such as Nord Stream or South Stream, remain in force.
But LNG markets may fail to live up to the big expectations. According to Mikhail Korchemkin, head of East European Gas, the U.S. is now increasing the use of shale gas (already at 15%). Given such a rate, the analyst said, U.S. demand for LNG supplies may drop markedly.
Surgut's Hungarian purchase ends in European scandal
Hungary's MOL oil and gas company is concerned by Surgutneftegaz's acquisition of a 21.2% stake in MOL from Austria's OMV and considers the deal as hostile. In its opinion, the high price of the deal may be evidence that the Austrians were acting in the interests of the Russian company from the beginning. Experts do not believe this, but are not ruling out that Surgut will try to gain control of MOL.
According to MOL executive director Zsolt Hernadi, the Russian corporation's intentions are unclear, while the deal itself was an unpleasant surprise on the company's management. In addition, the Hungarians consider the price paid suspiciously high. Surgutneftegaz agreed with Austria's OMB to purchase a 21.2% stake in MOL for 1.4 billion euros, which is almost twice as high as the market price. Surgut acquired the stake for the same price which OMV paid in 2007, plus interest and minus dividends, said Hernadi. According to him, this may be a sign that the Austrian company was acting in Russian interests in the initial purchase.
Experts do not believe that OMV acted in Russian interests. OMV had its own interest in MOL, says Dmitry Lyutyagin, an analyst with Veles Capital. As for the price, the Hungarian company has grown and expanded since its purchase. Typically, such purchases are not made at prices equal to oil market quotes, they are calculated from fundamental indicators.
Lyutyagin is not ruling out a further increase in Surgut's share in MOL, but this could happen only in a distant future - when all rumors, emotions and commentators' speculation are laid to rest. Cooperation between the Russian and Hungarian companies may benefit both: MOL has a relatively high debt burden, while Surgut has money.
In the view of Alexei Kokin, an analyst with Metropol Investment Financial Company, it may well be that the Russian company will try to clamp control over MOL or resell its stake. Once it has control of MOL, Surgutneftegaz could establish an integrated company with it and Croatia's INA (MOL's main shareholder). But alone the Russian corporation will find it a tall order to gain control, the analyst said.
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