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The Interpreter
Russian-to-English translation journal, with original analysis and commentary on Russia's foreign & domestic policy.
December 18, 2015

Publication: Russia Update
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The Interpreter
Russian-to-English translation journal, with original analysis and commentary on Russia's foreign & domestic policy.
Central And East European EU Members Oppose Germany Over Support of Russia's Nord Stream-2 Pipeline

European Council President Donald Tusk said that Russia's Nord Stream pipeline does not meet European Union rules, Reuters reported.

The presidency of the European Council is elected for a term of 2.5 months; Tusk was elected in 2014 and will leave office in May 2017.

As often is the case with issues related to Russia, Tusk's pronouncement on Nordstream, which would run from Russia to Germany, may not be the last word on the subject.

Interpretation of his announcement was soon varied: 

His reference is to the Social Democratic Party of Germany which has favored better trade and cooperation with Russia.

What's interesting is that Italy -- whose own gas company Eni has significant presence in Russia -- has led the charge against Germany in this dispute.

Renzi urged European socialists to unite against German power - source

BRUSSELS Centre-left governments should join forces to counter German influence in the European Union, Italy's Prime Minister Matteo Renzi told socialist leaders on Thursday, according to a source who attended the meeting.

View full page →
Dec 18, 2015 23:28 (GMT)
As always, Russia's main foreign-language propaganda outlet picked up the split in Europe and ran with it:
German Chancellor Angela Merkel has defended the planned Nord Stream-2 pipeline that would deliver natural gas from Russia to Germany via the Baltic Sea. The deal is being criticized by Eastern European countries, left out of the project.

“I made clear, along with others, that this is a commercial project; there are private investors,” Merkel said Friday.

 Russia’s Gazprom holds a 50 percent stake in the project. The other 50 percent is divided equally between Royal Dutch Shell, Germany’s E.ON and BASF, Austria’s OMV and France’s Engie.

The issue isn't just about doing business with Russia; EU sanctions have meant that European countries have stalled or ended investment in Russia such as the Southstream pipeline project.

Nordstream is Russia's answer to the problem of needing to pipe gas through Ukraine to reach Europe - a more urgent issue now that yet another Russian project -- TurkStream -- has been suspended in the wake of deterioration of Russia's relations with Turkey following the shootdown of Russia's plane by the Turkish air force.

Ukraine's Prime Minister Arseniy Yatseniuk  said the project would cost Ukraine $2 billion annually in transit fees they would have collected if Russia continued to go through them, RT explained. A deal to begin construction of NordStream-2 was signed in September.

Merkel said there was "willingness to keep Ukraine as a transit country." "That's the political wish," she said.

That political wish may falter, given geographical realities and the EU's dependency on Russia for 30%  of its gas -- some European countries, such as Austria, which is among the NordStream investors, depend on Russia for more than 50% of their gas.

2015-12-18 18:02:24

Chart by Financial Times

What Poland did on its watch was push for application of the EU's own rules:

As Alan Riley, a resident of the Atlantic Council said in an op-ed piece yesterday in the Wall Street Journal:

It’s a dispute that will likely escalate all the way to the European Court of Justice. It’s a fight Europe needs to have.

The Nord Stream II pipeline would stretch 1,200 kilometers across the Baltic Sea, from Vyborg on the Russian coast to Griefswald, Germany. Once completed, it would have the capacity to transport 27.5 billion cubic meters of gas directly to Germany, circumventing Ukraine and the Central and Eastern European states. Russia’s Gazprom would own 50% of the project, and France’s Engie, Austria’s OMV, Royal Dutch Shell, and Germany’sBASF and E.ON each would own a 10% share.

The EU’s Central and Eastern European member states fear with good reason that such a pipeline would undermine the security of their energy supplies, which depends on their role as transit countries to Western Europe. As long as Russia needs their transit routes to access the lucrative Western European market, they are unlikely to have their energy supplies cut off.

Nord Stream II is intended to circumvent these states, shipping Russian gas directly to Germany. Central and Eastern European countries then would have to depend on Russia’s willingness to continue selling them gas through existing pipelines. The alternative would be to buy Russian gas from Germany after the gas had passed through Nord Stream II—provided Russia sold enough surplus gas to Germany, and that Germany was willing to supply those countries over possible Russian objections.

This isn't just speculation; Russia has shown itself willing to shut off the gas to Ukraine, and has threatened other countries if they supply gas to Ukraine.

Poland, Estonia, Slovakia, and Italy are the main countries protesting Germany's decision to pursue NordStream because they believe it will hand Putin more power and undermine the sanctions the EU still maintains over the annexation of Crimea.

EU rules require that pipelines not threaten domestic or EU supply security; some European powers believe because Nordstream passes between the seas of Denmark and Germany, the rule would apply, and Gazprom would have to get a waiver to install Nordstream for that reason. Germany maintains that the rule doesn't apply to undersea pipelines.

It remains to be seen how this dispute plays out as the Netherlands, one of the Nordstream investors, assumes the presidency for the next six months amid such an obvious split among EU members.

-- Catherine A. Fitzpatrick 

The Interpreter
Russian-to-English translation journal, with original analysis and commentary on Russia's foreign & domestic policy.
Rogozin Says Delivery of S-300 to Iran 'In Near Future' Without Specific Time Frame
Iran will withdraw its $4 billion lawsuit against Russia for non-delivery of the S-300 anti-aircraft system, under a new contract for delivery which should take place "in the near future," Russian Vice Premier Dmitry Rogin announced, Interfax and reported: (translation by The Interpreter):

"They should be withdrawn after the delivery of the first division...The terms of the delivery are an unconditional withdrawal of the relevant suit from international court."

Rogozin didn't specify an exact deadline, saying "this was a matter for contractual obligations," although in recent months Russian officials had indicated "early 2016" as the time frame for the delivery.

Thus his statement was a recycling of news that has been repeated in recent months since Russian began its bombing campaign in Syria September 30 but hasn't become any more pinned down.

On November 9, TASS reported that Iran and Russia would sign the new contract "in early 2016," as we reported. In addition to the issue of the lawsuit, there are the practical issues of Iran coming up with the cash to pay for the S-300s and Russia needing the time to manufacture them.

Rogozin, a hardliner responsible for military and space affairs in the Russian government gave himself an out for possible further delays with further explanation that the lawsuit had originally been launched with the involvement of the Iranian parliament:

"That is, it is not just the spiritual or political leadership of Iran. That is, this question must be decided in parliament. But there is complete understanding on the Russian as well as the Iranian side that the fulfillment of the contract is impossible without withdrawal of the lawsuit.

It's a question of who will first reach out their hand. And both simultaneously reached out."

The original deal was signed in 2007, but in 2010, then-President Dmitry Medvedev agreed to delay the delivery in compliance with UN Security Council No. 1929 which established an embargo on Iran due to its nuclear program.

After a new international agreement was reached with Iran, although many troubling violations have occurred, the Kremlin believes they are justified in removing their ban on the S-300.

Sergei Chemezov of Rostekha  said November 9 that "a new contract was signed between Almaz-Anti and Iran to deliver the S-300 within 18 months."  He then specified that the "contract was already in force" and possibly meant the previous contract signed with Iran years ago, which had the phrase "S-300" removed from it by a decree from President Putin. At the same time, TASS reported officials anticipating they would sign the new contract "in early 2016."

Now in the waning weeks of 2015, Rogozin is saying "in the near future." 

On August 26, Interfax reported a source that Moscow and Tehran had agreed to withdraw the lawsuit. It was not clear whether the withdrawal had to precede the delivery of the S-300s and it has been nearly four months. Now Rogozin  has specified that "the first division" had to be delivered before the withdrawal of the suit.

Iran anticipated signing of the contract in August, reported at the time. 

As the BBC's Russian Service also noted at the time, Chemezov didn't specify what kind of modified S-300 Iran would get. 

In July, presidential aide Vladimir Kozhin had said that Russia would give Iran a modified S-300.

"This will be the same S-300 system that Iran wanted to get [in 2007]. A fair amount of time has passed, it has been partially modified, individual elements are being modified."

A loan to Iran of $5 billion for development of its energy system is only in its draft stages, Vice Premier Igor Shuvalov reported November 23. 

-- Catherine A. Fitzpatrick 

The Interpreter
Russian-to-English translation journal, with original analysis and commentary on Russia's foreign & domestic policy.
Bank of Russia Establishes Official Rate of Ruble to Dollar at New Low

The Central Bank or Bank of Russia established the official rate of the ruble to the dollar to 74.1 rubles per $1 and the euro to 77.4 rubles per euro this morning, thus hitting a new low in value since the 1998 crash, reported. The ruble was only lower in worth in December 1997 before the denomination of the ruble.

As we noted, the plunge in the ruble is tied to the drop in world oil prices, but that's not the only reason for Russia's currency problems:

It's a mistake to blame all of Russia's currency problems on the oil market. A year ago we analyzed the performance of the ruble against both major news events and the falling price of oil and found that the ruble was forced downward by investor response to Russia's bad behavior, and only after this did the ruble more closely track the price of oil. Still, there's no denying that Russia's money troubles will continue for the foreseeable future unless energy prices rally.

Despite the Central Bank's raise of its rates to 17% this week, the ruble didn't recover as the Wall Street Journal noted 2 days ago:

The battered ruble plunged to a record low against the dollar again Tuesday, as investors grew convinced that the Russian central bank’s surprise move overnight to jack up interest rates to 17% wouldn’t be enough to alleviate the pressure on the currency from falling oil prices and western sanctions.
By early afternoon in Moscow, the ruble dropped sharply, reaching 80 to the dollar, a record low and a 15% decline from opening levels when it rallied briefly. At 4:30 p.m. local time, the dollar was trading around 73 rubles. However it regained some ground in the evening and narrowed its decline to 5.6% after Economy Minister Alexei Ulyukayev said the government will introduce some “regulatory measures” at the forex market, but said it is not discussing any capital-control measures.

His televised comments came after a meeting of the key financial and economic officials with Prime Minister Dmitry Medvedev. “The measures will be aimed at a better balance of demand and supply in the domestic currency market,” the minister said, adding the government will increase refinancing in foreign currency. Mr. Ulyukayev said the ruble is “undervalued” and “doesn’t correspond to current economic fundamentals,” but he declined to say at what level the ruble should trade.

Currently,  The battered ruble plunged to a record low against the dollar again Tuesday, as investors grew convinced that the Russian central bank’s surprise move overnight to jack up interest rates to 17% wouldn’t be enough to alleviate the pressure on the currency from falling oil prices and western sanctions. is currently showing the ruble trading at 70.94 to the dollar, 76.79 to the euro, and Brent crude at 36.99.

Meanwhile, the Russian Federal Security Service (FSB) raided four Turkish banks yesterday on suspicion of "money-launderinging" in an ongoing trade war between Russia and Turkey since the downing by Turkey of a Russian fighter plane that strayed into Turkish air space near the Syrian border on November 24.

-- Catherine A. Fitzpatrick