The less Americans know, the more they want to intervene

[WestCoastJoe]

Russian Oligarchs Fear Economic Casualties if Ukraine Crisis Escalates

By ELLEN BARRYMARCH 10, 2014

MOSCOW — When Vladimir V. Putin returned to the Russian presidency in 2012, one of the first messages he sent to his political elite, many of them heads of banks and large corporations, was that the times had changed: Owning assets outside Russia makes you too vulnerable to moves by foreign governments, he told them. It’s time to bring your wealth home.

Nearly two years later, those words sound like preparation. After a week of escalating tensions between Russia and the United States, it has become clear that the conflict over Ukraine will move to the battlefield of finance. Those same business titans are now contemplating the damage that the crisis could infict on Russia’s economy.

Twenty years into the project of integrating Russia into Western institutions, they now face the prospect that the process could slow, or even reverse.

Financial sanctions, which the United States has suggested it will impose if the conflict escalates, are intended to test the cohesion of the political system. Mr. Putin demands complete loyalty from those who are allowed to lead Russia’s business empires, and has made it clear that he will punish those who undermine him. His tough stance in Crimea, meanwhile, has been enthusiastically welcomed by the general public, including, insiders say, many of those in business. No one is breaking ranks.

Still, the prospect of losing access to Western finance is a frightening thought for Russian business leaders, whose voice in foreign policy decision-making is muted compared with the tight circle of Mr. Putin’s former K.G.B. colleagues, for whom economic factors may be secondary.

Anxiety over possible economic fallout has begun to radiate from business circles, and some wondered whether Mr. Putin had been warned clearly about the magnitude of the possible damage to the economy. One analyst described their mind-set as one of “cognitive dissonance.”

“I’ve seen 10 people from the Forbes list in the recent few days. They’re pale; they don’t understand,” said Aleksandr Y. Lebedev, a prominent banker who sold most of his Russian assets after public disputes with Mr. Putin. But the oligarchs realize, he said, that their interests carry no weight in this situation, especially if they, like Mr. Lebedev himself, own property outside Russia.

“It’s those who are here who will take the burden,” said Mr. Lebedev, speaking from Moscow. “They all keep their mouths shut.”

Last week, days after Russia took control of Crimea, the United States announced a modest first round of sanctions and the European Union indicated it would follow suit, with both making it clear that there may be further rounds. Officials have suggested that a range of measures is being considered, leaving open, by implication, the most extreme one: barring Russian companies and banks from access to the Western financial system, similar to sanctions adopted against Iran.

President Obama has broad executive powers to declare sanctions without approval from Congress, and would most likely consider next steps after Crimea votes in a referendum on separating from Ukraine, scheduled for March 16, said Michael A. McFaul, until recently the American ambassador to Moscow. “It needs to be spelled out as explicitly as possible, either directly to Putin or to the two or three people who could talk to him about this,” he said.

Russia may be betting, as many analysts do, that the United States and its allies will not follow through with draconian sanctions, and has made it clear that it would respond harshly and asymmetrically. On Friday, Gazprom hinted that it might cut off gas exports to Ukraine over unpaid bills, as it did in 2009, and an unnamed Defense Ministry official told Russian news agencies that it would consider stopping international inspections of its nuclear weapons.

Russia’s tycoons have been silent since the crisis began, apart from approving messages on social media. Many inside Russia’s large corporations are no doubt supportive of Mr. Putin’s moves in Crimea, which are widely seen here as correcting a historical error made by the Soviet leader Nikita S. Khrushchev, when he transferred Crimea to the Ukrainian Soviet Socialist Republic. Mr. Putin’s approval ratings are at their highest point since he returned to the presidency in 2012. If corporate leaders are complaining, they are doing it quietly.

“Of course they’re upset, but it doesn’t mean they are prepared to challenge Russia’s foreign policy,” said Mikhail E. Dmitriyev, an economist whose research group was originally founded to shape Mr. Putin’s economic platform. “This is a new reality. Even if somebody has reservations with regard to the policy’s effectiveness, I strongly doubt they would express it. This is a policy which, for the moment, is backed by the vast majority of the public. It’s not an exaggeration.”

In private conversations, though, several people described high anxiety within corporations, especially about the prospect of any sanctions’ affecting banks. Large Russian corporations have significantly increased foreign borrowing in recent years, and 10 were negotiating loans when the crisis boiled over, said Ben Aris, the editor and publisher of Business New Europe. Financial sanctions could set off a chain reaction of blocked transactions, frozen accounts and bank closings. “Those oligarchs who are already having trouble would be completely cut off,” he said.

Sberbank, the state retail bank, and the state investment bank VTB have actively expanded into Eastern Europe, including Ukraine, and own assets in Western Europe and the United States. Rosneft, the state oil company, has a deal with Exxon Mobil to drill in the Russian Arctic, the flagship project of Igor I. Sechin, a deputy prime minister and one of Mr. Putin’s closest aides.

Some pointed to a more long-term danger that the conflict over Ukraine, if it escalated, could culminate in a turn toward isolation for the Russian economy.

“It may be that we look back on the events of last weekend and remember it as an inflection point when Russia’s growing integration with the planet, which has been remorseless — Russia has integrated into the global architecture, and people feel they are part of the world — maybe we look back on this weekend as a time when there were a big set of steps back,” said Bernard Sucher, the former head of Merrill Lynch in Russia.

It is unclear how heavily Mr. Putin weighed the economic consequences when he decided to take control of Crimea. During his first years as president, Mr. Putin was known as an economic liberalizer, and one of his most trusted advisers was Aleksei L. Kudrin, the liberal-leaning former finance minister who gave him his first job in the Kremlin administration.

But Mr. Putin, whose return to the presidency was opposed by many urban liberals, now makes his most important decisions in an inner circle of men who emerged from Soviet security services. Among the first new projects in his new presidency was a push to “nationalize the elite,” requiring officials to sell off investments and properties outside Russia that could, in his view, undermine their loyalty in the event of a confrontation with the West.

Indeed, among the small group of people present when Mr. Putin made the final decision on Crimea, according to officials and analysts, were five or six former K.G.B. colleagues believed to have minimal assets outside Russia, and therefore not vulnerable to sanctions. Some of those now closest to Mr. Putin, like the head of the Russian Railway, Vladimir Yakunin, have long argued for Russia to turn away from Western economic models and toward Chinese-style state capitalism.
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In a column in Vedomosti on Friday, the economist Yevgeny S. Gontmakher described a number of painful steps that might allow Mr. Putin to manage an economic contraction: increasing taxes on the rich and middle class; reducing spending on education, health and social services; decreasing unemployment payments and subsidies to struggling factories; and reallocating the budget to support constituencies crucial to social stability, like pensioners and state employees. All of them, he pointed out, would require tightening social controls.

Mr. Dmitriyev, who is in close touch with the economic officials who advise the Kremlin, said he believed Mr. Putin had a clear understanding of the potential for damage to the economy when he made the decision on Crimea.

“Economic risks are an important factor in the whole policy agenda, but of course this is not the only factor, and the Ukrainian events cannot be wound back,” Mr. Dmitriyev said. “This is a ratchet mechanism which unwinds in only one direction. This is one reason there is a lot of wishful thinking in the West.”

http://www.nytimes.com/2014/03/11/world ... ml?hp&_r=0

[WestCoastJoe]

MOSCOW — When Vladimir V. Putin returned to the Russian presidency in 2012, one of the first messages he sent to his political elite, many of them heads of banks and large corporations, was that the times had changed: Owning assets outside Russia makes you too vulnerable to moves by foreign governments, he told them. It’s time to bring your wealth home.

http://www.nytimes.com/2014/03/11/world ... ml?hp&_r=0

Financial sanctions, which the United States has suggested it will impose if the conflict escalates, are intended to test the cohesion of the political system. Mr. Putin demands complete loyalty from those who are allowed to lead Russia’s business empires, and has made it clear that he will punish those who undermine him. His tough stance in Crimea, meanwhile, has been enthusiastically welcomed by the general public, including, insiders say, many of those in business. No one is breaking ranks.

Still, the prospect of losing access to Western finance is a frightening thought for Russian business leaders, whose voice in foreign policy decision-making is muted compared with the tight circle of Mr. Putin’s former K.G.B. colleagues, for whom economic factors may be secondary.

Anxiety over possible economic fallout has begun to radiate from business circles, and some wondered whether Mr. Putin had been warned clearly about the magnitude of the possible damage to the economy. One analyst described their mind-set as one of “cognitive dissonance.”

Hubris also.

Damage to the economy? Ahhh ... what a shame. If it is true that "people get the government they deserve" (as I have quoted on here before), then it might be time for the Russian people to demand better leadership from their "elected" officials.

Last week, days after Russia took control of Crimea, the United States announced a modest first round of sanctions and the European Union indicated it would follow suit, with both making it clear that there may be further rounds. Officials have suggested that a range of measures is being considered, leaving open, by implication, the most extreme one: barring Russian companies and banks from access to the Western financial system, similar to sanctions adopted against Iran.

That would be a big ouch.

President Obama has broad executive powers to declare sanctions without approval from Congress, and would most likely consider next steps after Crimea votes in a referendum on separating from Ukraine, scheduled for March 16, said Michael A. McFaul, until recently the American ambassador to Moscow. “It needs to be spelled out as explicitly as possible, either directly to Putin or to the two or three people who could talk to him about this,” he said.

Obama has been painted by his opponents as weak. I do not see him that way. He is measured in his actions. He is willing to make the tough decisions. He is patient. Does he have faults and weaknesses? Of course.

Russia may be betting, as many analysts do, that the United States and its allies will not follow through with draconian sanctions, and has made it clear that it would respond harshly and asymmetrically. On Friday, Gazprom hinted that it might cut off gas exports to Ukraine over unpaid bills, as it did in 2009, and an unnamed Defense Ministry official told Russian news agencies that it would consider stopping international inspections of its nuclear weapons.

LOL Those measures are not too scary.

Russia’s tycoons have been silent since the crisis began, apart from approving messages on social media. Many inside Russia’s large corporations are no doubt supportive of Mr. Putin’s moves in Crimea, which are widely seen here as correcting a historical error made by the Soviet leader Nikita S. Khrushchev, when he transferred Crimea to the Ukrainian Soviet Socialist Republic. Mr. Putin’s approval ratings are at their highest point since he returned to the presidency in 2012. If corporate leaders are complaining, they are doing it quietly.

Yes, Putin can play to the crowd. I have to say that Russians, after being lied to and misled back to the times of the Czars, do not have good judgment about world events and affairs. Paranoia rules. Judgements are often inaccurate. Consequences are not considered.

In private conversations, though, several people described high anxiety within corporations, especially about the prospect of any sanctions’ affecting banks. Large Russian corporations have significantly increased foreign borrowing in recent years, and 10 were negotiating loans when the crisis boiled over, said Ben Aris, the editor and publisher of Business New Europe. Financial sanctions could set off a chain reaction of blocked transactions, frozen accounts and bank closings. “Those oligarchs who are already having trouble would be completely cut off,” he said.

Too bad.

Sberbank, the state retail bank, and the state investment bank VTB have actively expanded into Eastern Europe, including Ukraine, and own assets in Western Europe and the United States. Rosneft, the state oil company, has a deal with Exxon Mobil to drill in the Russian Arctic, the flagship project of Igor I. Sechin, a deputy prime minister and one of Mr. Putin’s closest aides.

Ahhhh ... One of Putin's cronies facing difficulties? Ahhhh ......

Some pointed to a more long-term danger that the conflict over Ukraine, if it escalated, could culminate in a turn toward isolation for the Russian economy.

“It may be that we look back on the events of last weekend and remember it as an inflection point when Russia’s growing integration with the planet, which has been remorseless — Russia has integrated into the global architecture, and people feel they are part of the world — maybe we look back on this weekend as a time when there were a big set of steps back,” said Bernard Sucher, the former head of Merrill Lynch in Russia.

Yes, and that is a big risk for the Russian people. One can imagine that it might become more difficult for people to leave the country.

It is unclear how heavily Mr. Putin weighed the economic consequences when he decided to take control of Crimea. During his first years as president, Mr. Putin was known as an economic liberalizer, and one of his most trusted advisers was Aleksei L. Kudrin, the liberal-leaning former finance minister who gave him his first job in the Kremlin administration.

It would not surprise me if Putin failed to carefully consider the consequences of his actions. He shows some evidence of self-aggrandizement.

But Mr. Putin, whose return to the presidency was opposed by many urban liberals, now makes his most important decisions in an inner circle of men who emerged from Soviet security services. Among the first new projects in his new presidency was a push to “nationalize the elite,” requiring officials to sell off investments and properties outside Russia that could, in his view, undermine their loyalty in the event of a confrontation with the West.

Putin is correct in his assessment, but he is moving Russia back into the dark times of control and repression.

Indeed, among the small group of people present when Mr. Putin made the final decision on Crimea, according to officials and analysts, were five or six former K.G.B. colleagues believed to have minimal assets outside Russia, and therefore not vulnerable to sanctions. Some of those now closest to Mr. Putin, like the head of the Russian Railway, Vladimir Yakunin, have long argued for Russia to turn away from Western economic models and toward Chinese-style state capitalism.

Not a good sign when a leader only listens to those who never oppose his views.

In a column in Vedomosti on Friday, the economist Yevgeny S. Gontmakher described a number of painful steps that might allow Mr. Putin to manage an economic contraction: increasing taxes on the rich and middle class; reducing spending on education, health and social services; decreasing unemployment payments and subsidies to struggling factories; and reallocating the budget to support constituencies crucial to social stability, like pensioners and state employees. All of them, he pointed out, would require tightening social controls.

Those developments will hurt.

Mr. Dmitriyev, who is in close touch with the economic officials who advise the Kremlin, said he believed Mr. Putin had a clear understanding of the potential for damage to the economy when he made the decision on Crimea.

What does Putin care if the clock is turned back in Russia? It just consolidates his power. He is already personally very wealthy, as are his cronies. They will not suffer personally.

IMO ...

[Sir Purrcival]

It would appear that the major trump card that Russia has to play is it's oil and gas reserves. The Russians supply something like 80% of Western Europe's needs in that regard and it is not something that is easily given up or embargoed. However, getting materials and goods from the west is likely going to be much harder after all of this. I'm sure that Russians won't be longing to go back to the good ol' days of shortages and line ups. Russia is pretty repressive and is likely to get more so in the coming months and years. Putin seems to be cut from the old party cloth. He seems to love power and those kinds of folks are always the most dangerous because no matter how wealthy they may be personally, it isn't enough. I actually think that the big player in this may actually be China. If China were to side against Russia on this one, that would make two of the 3 major super powers and even the mighty Russia would start to feel pretty vulnerable. China as well has the proximity and man power and economic muscle to provide a mighty big security issue for Russia if it chose to do so.
I'm not sure what it would take to get them involved to the degree it might take but even a few words through back channels might be enough to get the Russians to engage some restraint.

[South Pender]

It would appear that the major trump card that Russia has to play is it's oil and gas reserves. The Russians supply something like 80% of Western Europe's needs in that regard and it is not something that is easily given up or embargoed. However, getting materials and goods from the west is likely going to be much harder after all of this. I'm sure that Russians won't be longing to go back to the good ol' days of shortages and line ups. Russia is pretty repressive and is likely to get more so in the coming months and years. Putin seems to be cut from the old party cloth. He seems to love power and those kinds of folks are always the most dangerous because no matter how wealthy they may be personally, it isn't enough. I actually think that the big player in this may actually be China. If China were to side against Russia on this one, that would make two of the 3 major super powers and even the mighty Russia would start to feel pretty vulnerable. China as well has the proximity and man power and economic muscle to provide a mighty big security issue for Russia if it chose to do so.
I'm not sure what it would take to get them involved to the degree it might take but even a few words through back channels might be enough to get the Russians to engage some restraint.

There has been talk about the US exporting LNG to Europe if Russia cuts back its supplies. Evidently, the US has a huge oversupply of LNG, but whether the logistics of this are really feasible, I don't know.

[KnowItAll]

on another note, I think Canada should invade what should be the north coast of BC.

Do ya think there would be worldwide condemnation

[WestCoastJoe]

Quebec would welcome Canadian tourists without borders or tolls if the hardliners in her party got their way and the province split from Canada, Parti Québécois Leader Pauline Marois said Tuesday.

She was asked whether an independent Quebec would be more attractive as a tourism destination during a campaign stop in Notre-Dame-des-Bois near Lac-Mégantic.


“It won’t change our landscapes, that’s for sure,” she said with a laugh. “We’ll still be able to go see the Rockies out West and go to Prince Edward Island and they’ll be able to come here. There won’t be any borders or tolls.”

She said an independent Quebec would have more latitude and freedom but she did not immediately elaborate on the border issue.

“No, no, we’re not on independence today, we’re discussing Lac-Mégantic,” the premier said.

She pledged to help the city attract tourists back to the area, eight months after a devastating derailment killed 47 people when a train carrying crude oil exploded at the centre of the town of 6,000.

Related
Graeme Hamilton: No doubt now that Quebec vote is all about sovereignty
Full Pundit: Will Péladeaumania cure Marois malaise?
‘I am a sovereigntist’: Corporate titan Pierre Karl Péladeau expected to lend ‘economic credibility’ to PQ
Have the PQ poked the bear?: Liberal leader Philippe Couillard may be a fiercer opponent than Marois expects
But Marois confirmed for the first time that a PQ government would not help pay for a new rail line that would pass around – rather than through – the town.

“We would turn to Ottawa” for the funds, she said according to the Montreal Gazette. “They are responsible for rail transport.”

Asked if the Conservative government had fulfilled its responsibilities to date, Marois replied: “I don’t want to reopen that Pandora’s box. It’s already been complicated enough getting to where we are. We fought the battles we could fight. The important thing is that the people of Lac-Mégantic got help.”


THE CANADIAN PRESS/Ryan RemiorzQuebec Liberal leader leader Philippe Couillard speaks to reporters after the election call Wednesday, March 5, 2014 in Quebec City, Que.. Quebecers will vote in a provincial election April 7, 2014.
Liberal Leader Philippe Couillard said the PQ’s constant musings on Quebec’s future only serve to hurt the province and that his political foes should tone down the rhetoric.

“Every time they hint at a referendum, Quebec is weakened,” he said at a campaign stop in Trois-Rivieres.

Quebec independence would destroy the rest of Canada because the province is an “essential part” of the country and its “distinct character” is part of what makes Canada so interesting.

Every time they hint at a referendum, Quebec is weakened
Later in the day, Marois sought to clarify the border comments when she agreed with a reporter’s assertion that an independent Quebec would be like the European Union, where there is free movement of citizens.

Andrew Coyne: Rogue Quebec billionaire not so much going into politics as launching a takeover bid

On the day it was announced, Pierre Karl Péladeau’s entry into provincial politics was hailed as a “masterful coup” for the Parti Québécois, a “game-changer” that would bolster the party’s credentials on economic issues. And not just in the newspapers he owns.

A day later, the hazards of inviting rogue billionaires to try their hand at politics began to become apparent. Asked whether he would divest his controlling interest in Québecor, the dominant media conglomerate in Quebec, Mr. Péladeau refused. And if the province’s ethics commissioner tells him he must? “I have no intention of selling my shares,” he huffed, adding it was “out of the question.”

Read more…
“That’s what it means, but that’s not to say there wouldn’t be a [Quebec] citizenship and, as such, a passport,” Marois said.

Couillard harked back to the failed 1990 Meech Lake constitutional agreement, which would have recognized Quebec as a distinct society.

“Canada didn’t refuse [to sign Meech],” he said. “Some provinces did not endorse Meech Lake but that doesn’t mean Canada turned it down.”

Couillard said he he believes Canadians in other provinces realize Meech was a “missed opportunity.”

“It should have [been approved by everyone]. But you don’t reject a country because it wasn’t. What’s that all about?”

Sovereignty continues to be a prominent issue in the Quebec election campaign, especially since the PQ’s new star candidate, Pierre Karl Peladeau, announced his dream to see the province become a country.

“Quebec has all the means to succeed. We have financial resources, we have human resources, we have natural resources,” Peladeau said Sunday to cheers from the party faithful in the Saint-Jerome he will run in. “We’ve got everything [we need] for a country to be alive and kicking.”


A recent poll suggests that support for Quebec sovereignty is holding steady at 39%, but the April 7 election won’t be a cakewalk for the PQ.

The PQ and Liberals are neck and neck at 36%, while the Coalition Avenir Québec has 17% of support and Québec solidaire has 8%, according to the Internet survey by CROP for Radio-Canada.

That marks a four-point drop for the PQ from its high of 40% in February, CROP vice-president Youri Rivest told the public broadcaster. But even with two parties evenly matched in popular support, the PQ could be headed for a majority because it has a strong lead in francophone ridings, he said.

We’ve got everything [we need] for a country
Among French-speaking Quebecers, the PQ has 42% of voter intentions, compared to 25% for the Liberals and 20% for the CAQ. That means the PQ is leading in key francophone ridings that could decide the election’s outcome.

The third-place CAQ is showing unexpected strength and is a contender in the Montreal-area suburbs and the Quebec City region, the poll suggests. Asked what party would be their second choice, 23% of respondents named the CAQ.

Fifty-two percent of Quebecers still have not decided or say they might change their minds, indicating the election results are very much up in the air, Rivest said.

He suggested it is not yet clear whether the candidacy of media mogul Péladeau will be a boon or a burden for the PQ.

With files from Monique Muise, Postmedia News and the Canadian Press

[WestCoastJoe]

Quebec would welcome Canadian tourists without borders or tolls if the hardliners in her party got their way and the province split from Canada, Parti Québécois Leader Pauline Marois said Tuesday.

She was asked whether an independent Quebec would be more attractive as a tourism destination during a campaign stop in Notre-Dame-des-Bois near Lac-Mégantic.

“It won’t change our landscapes, that’s for sure,” she said with a laugh. “We’ll still be able to go see the Rockies out West and go to Prince Edward Island and they’ll be able to come here. There won’t be any borders or tolls.”

She said an independent Quebec would have more latitude and freedom but she did not immediately elaborate on the border issue.

Business as usual, except that it seems to me Quebec would be taking a step down the economic ladder. No wealthy Ontario, nor Alberta, nor B.C. to provide support. There would be pension issues for Quebec.

So why do it?

French pride. English dislike. Some say there are unresolved feelings of being snubbed. All good reasons ... Nah

Is it possible that Quebec might vote for sovereignty? Not if the Aboriginal population gets out to vote. Not if those identified by Jacques Parizeau as "ethnics" get out to vote. Quebec for the French does not have universal appeal within Quebec.

“Quebec has all the means to succeed. We have financial resources, we have human resources, we have natural resources,” Peladeau said Sunday to cheers from the party faithful in the Saint-Jerome he will run in. “We’ve got everything [we need] for a country to be alive and kicking.”

A recent poll suggests that support for Quebec sovereignty is holding steady at 39%, but the April 7 election won’t be a cakewalk for the PQ.

I would suggest that B.C. And Alberta would be a better bet at successful sovereignty. If we didn't mind being partners with "Texas North," land of cowboys, oil and radical politics.

Quiet day. Idle musings ...

[Sir Purrcival]

It seems that most Quebec'rs with an ounce of common sense look at separation with a very jaundiced eye. PQ support is most strong in rural areas. Those are the ones that tend to travel the least, live and work within their communities.

Quebec takes something like 9bn a year in equalization payments. - gone under a Quebec Libre
Quebec youth often travel out of province for work with minimal challenges - try doing that with a QL. You now need a work permit
Official bilingualism - gone under a QL. Have fun doing business in French with the rest of North America!
Taking the whole province with you? I doubt it. Roberts land would historically belong to the rest of Canada which is also where aboriginals want to be.
St. Lawrence Seaway - now there is a thorny issue. Nationalized by Canada, 50% owned by the US. Don't think either current party is going to want to share a controlling interest with an independent French Quebec. Not sure how that one gets solved.
Brain drain - How many businesses that are currently headquartered in Montreal are going to stay there with a QL? - how many angliphones and other ethnic groups are going to migrate away in large numbers under a QL? Even more poignant, how many Francophones would feel the need to move for career or opportunities for their children?

No, I'm sorry to say that a QL would be an entirely different animal than many in Quebec appear to think it is. I don't care if they don't have borders, use our currency or whatever. We would certainly want borders on our side. We could scrap the 2 official languages, we could dump the Senators from Quebec and the MP's from Quebec. No dual citizenship either in my world. At best I would grant it for all individuals current living in Quebec. But children of Quebecois are Quebecois by nationality if born in Quebec. I'm pretty sure Canada would be a much more prosperous country with out the sword of Quebec nationalism also lurking behind our backs. We spend entirely too much energy trying to keep them happy.

[WestCoastJoe]

http://fullcomment.nationalpost.com/201 ... the-world/

Erol Araf: The man who saved the world

Erol Araf, National Post | March 12, 2014 | Last Updated: Mar 11 4:14 PM ET

Andshel/Wikimedia CommonsIn 1983, a Soviet satellite reported that the Americans were launching their nuclear missiles. But air defence officer Stanislav Petrov didn't believe it..

Thirty one years ago, in the midst of growing East-West tensions in Europe, a Russian scientist named Stanislav Yevgrafovich Petrov saved the world from nuclear annihilation.

On Sept. 26, 1983, a Russian Oko early warning satellite in geosynchronous orbit over U.S. missile silos malfunctioned and falsely reported that the United States had launched several intercontinental ballistic missiles.

It was 12:13 a.m. in the Kaluga Oblast, to the southwest of Moscow. Petrov, an officer of the Soviet Air Defense Forces, was stationed at the Serpukhov-15 base there. He had to make an immediate decision: Either he would inform his superiors or he would try to verify the accuracy of the warning.

He was in a terrible bind. Petrov knew that the Soviet strategy called for immediate retaliation on the first warnings of a launch. Drenched in perspiration and “my heart in my mouth,” as he was to recall later, he hesitated. The idea of the U.S. launching only a few missiles made no strategic sense whatsoever. Russian military doctrine stated that the Americans would launch a massive first strike aimed at Soviet nuclear bases, with the objective of destroying the bulk of the U.S.S.R.’s missile forces, thus minimizing Soviet retaliation. But there were only a few missiles reported incoming. Where were the rest?

As Petrov considered the unusual tactics of this apparent attack, new warnings blared throughout the base. The huge electronic board in the command centre indicated that additional missiles had been launched at 12:22 a.m.

But still not a full strike.

Petrov considered what the second apparent volley of launches could mean. Tensions had recently been high. The West was alarmed by the deployment of the Soviet Union’s new submarine-launched SS-N-20 ballistic missiles. And the Soviets had, only days earlier, shot down a Korean passenger plane that had strayed into Soviet airspace. He knew it was possible that the U.S. was launching a decapitating strike aimed at Moscow, in the hopes of crippling the Soviet command and control systems, and killing its senior military and political leadership, while holding most of its missile forces in reserve to deter any massive Soviet retaliation.

Petrov had studied such a scenario: During the height of the Cold War, such a limited surprise attack was considered very plausible. There might be logic to this madness after all, he reasoned: For whatever reason, the Americans may have chosen that morning to begin, and perhaps win, a Third World War.

The number of missiles ultimately made no difference. Petrov had been trained to expect exactly the kind of attack that was currently playing out on his screen. He had already delayed several minutes — minutes that could prove to be the difference between a crushing American victory or a devastating Soviet counterattack.

It was now 12:24 a.m — 11 minutes since the first launch warning. That meant the missiles — if they had indeed been launched — had only 22 minutes of flight time left before reaching their targets and delivering their thermonuclear payloads. Petrov’s colleagues’ eyes were transfixed on him and the secure phone on his desk. The infernal sirens urged him into action. The blips on his screen indicated that U.S. missiles were moving relentlessly toward their targets at Mach 23, or 24,100 kilometers per hour.


The early warning system had malfunctioned before. But if he waited for land-based radar to confirm the attack, it may have been too late to fire back
.
For a second, Petrov thought that this might be a new drill, but dismissed that idea — that hope — quickly. Images of loved ones flashed through his mind; he surprised that it was just like he’d always heard. When facing death, all the moments in one’s life did flash before your eyes.

At 12:27 a.m., 14 minutes after the first alarm, he felt the weight of the world on his shoulders. He was so afraid he thought he might be sick to his stomach. But he knew that the reliability of his early warning systems had been questioned, and that there had been false alarms in the past. The Oko satellite system was brand new and had been hobbled with technical problems since its inception. Would his superiors, once alerted, take into consideration these previous malfunctions before ordering the Soviet Union’s own missiles fired at their targets in North America? Should he wait for Soviet Union’s land-based radars to confirm the threat? If so, his country would have only minutes to respond to the attack.

Petrov knew that the Soviets had repeatedly tested their own response times. At 12:29 a.m., 15 minutes after the warning and with 17 minutes left before impact, he decided that waiting for land-based radar confirmation would still leave the U.S.S.R. with enough time to launch an all-out counterattack. It would be close — but he believed it would not be too. So Petrov made the decision that saved the world: He didn’t pick up the phone. He didn’t report that an attack was in progress. He just waited.

After a tense few minutes, his judgment was proven correct. The land-based radars showed no incoming missiles. The U.S. had not fired. There was no attack in progress. It was just another Oko glitch.

According PBS’s science series NOVA, this close encounter of the nuclear kind was due to a design flaw in the Soviet early warning system which, unlike its U.S. counterpart, did not look “down” on the surface, but looked instead at the edge of the Earth. Accordingly, naturally occurring phenomena such as a rare alignment of sunlight and high-altitude clouds could trigger false alarms. This is precisely what happened on that autumn day.

What Petrov did not know was that in the fall of 1983, in the midst of a growing East-West crisis, the Soviet leadership and the KGB had convinced themselves that a NATO surprise attack may have been imminent. They were wrong, a victim of false intelligence, bad analysis and outright paranoia. But senior Soviet leaders believed — truly believed — that a surprise attack was imminent, and had even taken some steps to prepare for it (the higher Soviet military readiness partially explained the shooting down of the Korean passenger jet). Had Petrov phoned in a report of missiles leaving U.S. silos, it’s probable — almost certain — that the Soviets would have launched without waiting for the land-based radar reports. With their worst suspicions confirmed, there’s every reason to believe they would have let their missiles fly.

It didn’t happen, of course. The world lived another day, and in due time, the Soviet Union came crashing down. As the West and East again play high stakes games of diplomacy and intrigue, this time over the unfolding crisis in Ukraine, it’s worth remembering this era in our history. Things may seem bad now — for many in Ukraine, things are bad. But the world no longer stands on the brink of an apocalypse that only one man’s cool head and sound judgment prevented.

Not a surprise. We have long heard of gross inefficiency in all things Soviet and Russian.

[Sir Purrcival]

Yeah, that the fate of the world would hang on the decision of one guy is pretty scary. We really are on the edge of a precipice. All it will take is one mistaken action, machine foul up, one terrorist with a nuclear bomb and the whole thing could go to hell. That whole scenario as portrayed is ridiculous. Even if the US managed to completely wipe out the land based nukes of the Russians, it wouldn't matter a bit. The Russians have enough sub-based nukes to quite effectively launch a devastating retaliatory strike even though they currently have fewer active submarines than at any point during the cold war. When you read about 1 sub carrying 16 nuclear missiles with 4 warheads each, you only need to envision 1 escaping detection long enough to fire to realize that no one would "win". That is what Russia is counting on in the Crimea. No one is going to risk starting WWIII over that peninsula. The Russians seem perfectly content to embrace the lesser condemnations of the UN and basically are flipping the bird to the world and saying "We're here, we're staying and what are you going to do about it?"

They are counting on enough division throughout the rest of the world so as to make the impacts they do face limited in effect.

[WestCoastJoe]

http://www.cnn.com/2014/03/13/world/eur ... ?hpt=hp_t2

Change course in Crimea or face costs, West warns Russia

By Marie-Louise Gumuchian and Nick Paton Walsh, CNN

updated 12:58 PM EDT, Thu March 13, 2014

Simferopol, Ukraine (CNN) -- Western countries warned Thursday that Russia faces costs unless it changes course in Crimea, with U.S. President Barack Obama pledging to "stand with Ukraine" three days ahead of a controversial referendum.

In a speech to the German parliament Thursday, German Chancellor Angela Merkel said Sunday's secession referendum in Crimea is unconstitutional and Russia's presence in the Black Sea peninsula violates Ukraine's territorial integrity.

She warned Russian President Vladimir Putin that his actions would lead to "catastrophe" for Ukraine.

"It would also change Russia economically and politically," she said.

But Putin has reiterated his previous stance: Ukraine's crisis was caused by internal factors, not by Russia.

Ukraine's interim leaders are seeking support from Western countries as pro-Russians tighten their grip in Crimea before Sunday's planned secession referendum.

Warnings from the West

At a Senate committee hearing in Washington on Thursday, U.S. Secretary of State John Kerry predicted that Sunday's referendum would favor Crimea rejoining Russia.

But he warned that, absent movement by Russia toward negotiating with Ukraine on the crisis, "there will be a very serious series of steps Monday in Europe and here."

Kerry is slated to meet Friday with his Russian counterpart, Sergey Lavrov.

After meeting Wednesday with interim Prime Minister Arseniy Yatsenyuk, Obama offered a similar warning to Moscow: "We will continue to say to the Russian government that if it continues on the path that it is on, then not only us but the international community ... will be forced to apply a cost to Russia's violations of international law," he told reporters. "There is another path available, and we hope that President Putin is willing seize that path."

Yatsenyuk is to address the United Nations Security Council on Thursday.

The Paris-based Organisation for Economic Co-operation and Development said it had postponed activities related to Russia's process for membership in the organization.

In a boost to Kiev, members also "agreed that the OECD should respond positively to Ukraine's request to further strengthen existing OECD-Ukraine cooperation to take advantage of the OECD's expertise to address the public policy challenges it faces."

In the Austrian capital of Vienna, police arrested a Ukrainian businessman wanted by U.S. authorities on suspicion of bribery and other offenses. Austrian officials identified him as Dmitry F., 48. Other reports identified him as oil tycoon Dmytri Firtash, who was said to have close ties to ousted Ukrainian President Viktor Yanukovych.

Armed men have effectively isolated the Crimean Peninsula, which has an ethnic Russian majority, from the rest of Ukraine. Tensions have flared in recent days and worries have been heightened, as evidenced by long lines at banks in Simferopol, the regional capital.

The West ramps up the economic warnings to Putin.

[WestCoastJoe]

http://www.cnn.com/2014/03/05/world/eur ... le_sidebar

Conflict or compromise: 5 possible directions in Ukraine

By Tom Foreman, CNN

updated 12:13 PM EST, Thu March 6, 2014

(CNN) -- As so often happens in big international confrontations, Ukraine is devolving into a complicated mess from which no one has yet outlined a reasonable retreat acceptable to all sides. Russia did not push into Crimea just to put its tanks in reverse and go home. The Ukrainian government can't very well tolerate a land grab within 400 miles of Kiev. And the big Western powers, including the United States, have raised so many threats and objections, they will look weak, dishonest, or both if nothing is done now.

So let's sort through some options as laid out by many of our expert analysts on CNN.

1) Going to the guns: This is a good one to dispense with first, because no one wants it. Ukraine, absent massive and sustained outside help, would be decimated by the Russian bear. The Russians are better trained, better equipped and better funded. By virtue of geography and their superior navy, they would start the fight with Ukraine 60% encircled by hostile forces. But Russia has reason to keep the pistols holstered, too. Turning eastern Ukraine into a battlefield would disrupt critical industry, agriculture, and oil and gas sales in the region for years. Also, a pitched battle could draw in other players, and then the whole World War III discussion lights up.

2) Russia retreats: Unlikely. They didn't steam into Crimea just for a getaway weekend. The Russians have important assets to protect there, and that does not necessarily mean the 60% of the Crimean population that grew up speaking Russian. The vaunted Black Sea Fleet counts on its Sevastopol port for year-round access (via Istanbul) to the warm waters of the Mediterranean. Arguably, the fear of losing that route to an unfriendly Ukrainian government is what drove Russia to take Crimea in the first place.

Leaked call raises questions about who was behind sniper attacks in Ukraine

3) Russia retreats with some conditions: More likely. What conditions? Crimean leaders have already voted to leave Ukraine and rejoin Russia which was home until 1954, when Russia gave Crimea to Ukraine. Crimean voters will have a chance to ratify or reject this decision in the next couple of weeks, even as Kiev says they have no right to redraw the national borders. In any event, this is one possibility: Crimea becomes a part of Russia, or a semi-independent nation with great affection for Russia (read: a puppet state ready to do whatever Moscow wants). Or Russia gets a permanent agreement to turn Sevastopol into Russian territory, like the arrangement the United States has with Guantanamo Bay in Cuba. No matter how that plays out, Russia denies ever having designs on all of this -- even as the mysterious troops in the peninsula melt away, the rest of the world grumbles, and Ukraine goes back to trying to pay its debts.

4) Russia advances: Not content with Crimea and eager to show Kiev just who they are messing with, the Russians storm across the border and take much of eastern Ukraine. No one knows if this is in Russian President Vladimir Putin's plans, but if it happens ... see option No. 1.

5) The Western world turns on the squeeze play: The White House appears to want a unified effort in which nations all over the globe use their political and economic might to punish Russia and leave the new Ukrainian government triumphant. Problem is, several big countries seem reluctant to take that course, and unless everyone is on the same page, any sanctions would be weakened. And even though it was hit hard in 2008 by the recession, Russia is not Syria, Iran, or North Korea. This is a big nation that is unlikely to buckle quickly to any amount of pressure.

U.S. intelligence under fire over Ukraine

The takeaway: There are plenty of other possibilities, but conventional wisdom says these are the most likely options at the moment. The biggest danger? Everyone is wrong ... and some unforeseen, uncontrolled options arise, making the situation not better, but even worse.

It looks to me like #5 is the scenario that will unfold. The vote happens. It favours joining Russia. Crimea joins Russia. Fairly weak sanctions are put in place against Russia.

Putin might think he wins with his actions. But long term, it seems to me that he weakens his position relative to the Western world. Crimea was always in an extremely vulnerable position. And 58% of its residents are of Russian ethnicity. Russia just rolled over in its sleep and Crimea was annexed. Back to where it was before Khruschev's bizarre gift in 1954. Foregone conclusion.

And this could have been done diplomatically, albeit more slowly, with no downside for Putin, and no downside for Russia. Too eager. Too keen on self glorification. Putin consolidates his power in Russia. Russia moves back to darker days. Russian people may find they have less freedom as time moves on. Putin's cronies get even more rich. Corruption on a grand scale while the Russian people remain poor.

[Sir Purrcival]

I don't know that Putin felt he had the luxury of time. Within the space of 3 months, the Ukraine went from being a nice satellite state firmly under the kindly influences of Russia to a country that was on the verge of turning it's gaze westward. Now I don't know the specifics of how Russia is in possession of it's naval base in Crimea but let's assume that it is some kind of lease. That port is extremely important to Russia. It along with Vladivostok are the only ones that remain ice free year round. It is the sole port with easy access to the Atlantic available year round. If Crimea were to remain in Ukraine hands, there was a chance that down the road, Russia might lose that port. That would be a strategic disaster for Russia and insuring its continued possession for the Russian navy makes far more sense for their precipitous action and also annexation. If the Crimea is part of Russia, they don't ever have to give it up. Fear of the consequences of losing that port are probably far greater than the "economic sanctions" that Russia will have to endure.

China is still key in all of this IMO. They have been largely mute on the issue because they are in a damned if you do, damned if you don't position. They have been on an increasingly friendly basis with Russia since the fall of the Soviet Union but they don't dare proclaim open support for Russia's actions and most assuredly the referendum because of issues like Tibet. If they were endorse the Crimea referendum option, then what is to stop Tibet from claiming the same opportunity? As a result, you have seen some very neutral statements from the Chinese encouraging diplomatic solutions to the crisis and so on. If somewhow that were to change in favour of the west, that might be a different story but I can't see what would induce them to take that kind of stand. I believe that Crimea is as good as gone. Russia isn't going to leave under any circumstances and it has nothing to do with protecting "ethnic Russians". The referendum is just window dressing and even if the yes option was going to be defeated, I think that somehow magically, the results would come in favour of joining Russia anyhow.

No economic sanctions are going to be severe enough or global enough to turn Russia from this course of action and no one is going to break out the tanks, guns and bombs over Crimea.

[South Pender]

China is still key in all of this IMO. They have been largely mute on the issue because they are in a damned if you do, damned if you don't position. They have been on an increasingly friendly basis with Russia since the fall of the Soviet Union but they don't dare proclaim open support for Russia's actions and most assuredly the referendum because of issues like Tibet. If they were endorse the Crimea referendum option, then what is to stop Tibet from claiming the same opportunity? As a result, you have seen some very neutral statements from the Chinese encouraging diplomatic solutions to the crisis and so on.

It seems the other way around to me. If China is to be seen as at least consistent, they would support Russia's annexing of Crimea, since they did exactly that with Tibet. Tibet didn't ask for a referendum to join China, and if they held any sort of referendum now, it certainly wouldn't be to join another large country. For China to support the West would likely be seen as monumentally hypocritical. Of course, consistency has never got in the way of self-interest in world affairs

I agree that the West won't go military over Crimea. It will be written off. The larger question is what further adventures Russia has in mind. If they next go into Eastern Ukraine and try to take that back, you might see some serious NATO action.

[WestCoastJoe]

http://www.washingtonpost.com/opinions/ ... story.html

Russian expansion into eastern Ukraine could cost Putin dearly

By Vladislav Inozemtsev, Thursday, March 13, 5:05 PM

Vladislav Inozemtsev is director of the Centre for Post-Industrial Studies in Moscow and a visiting fellow at the Center for Strategic and International Studies.

The Kremlin appears to have bought into the tale it produced for domestic consumption: the notion that Ukraine’s eastern regions drive the country’s economy while its western areas are essentially free riders. But the data show a somewhat different picture.

The Ukrainian government reports that the eastern Donetsk oblast, or region, accounted for 12.4 percent of the country’s gross domestic product in 2013, while five western oblasts (Transcarpathian, Ivano-Frankivsk, Volyn, Ternopil and Lviv) collectively provided only 12.1 percent. Yet Donetsk received about 31 percent of all direct transfers that the central government dispersed among the regions. Last year, companies operating in that region were reimbursed 129 percent of the value-added tax they had paid.

For years, the government has heavily subsidized natural gas imported from Russia; for most of 2013, Kiev paid almost $410 per 1,000 cubic meters of gas, which it resold to industrialists for $220 to $240 per thousand “cubes.” Last year, under the Yanu­kovych government, distributions from Kiev to the Donetsk, Luhansk and Kharkiv oblasts — the three easternmost oblasts — amounted to 14 percent of gross regional product. Subsidies, which were 7.5 percent of Ukraine’s GDP in 2012, accounted for 63 percent of Crimea’s regional budget in 2013.

Elements of Ukraine’s power system have reinforced the policy of redistributing financial flows — and avoiding technological progress. Ukraine’s metallurgical and chemical enterprises require four to five times more energy than do those in the European Union. For more than 20 years, Ukrainian metal-processing companies faced little to no competition and did not upgrade to less energy-intensive systems. ArcelorMittal, the new owner of Ukraine’s largest steel company, Krivoy Rog, reduced its workforce by more than 20,000, to 34,000 employees, but managers have said that only about 7,000 workers would be needed to meet E.U. productivity standards. Without the customary substantial subsidies, many Ukrainian enterprises could go bankrupt should gas prices rise or metal prices fall.

Consider also that Russia’s “friends” have proved expensive. Moscow’s closest ally, Alexander Lukashenko’s Belarus, gets about $7 billion a year in fuel subsidies and as much as $2 billion a year in Russian loans and grants. The two tiny client states that Russia took from Georgia after the August 2008 war, Abkhazia and South Ossetia, have received more than $1.8 billion in Russian direct investment and $800 million in “private” investment from Russian state-controlled companies. Add in eastern Ukrainian provinces and allied Central Asian states, and Russia could be on the hook for $12 billion in annual subsidies.

That’s not terribly more than what has been typical in Ukraine. Last year, Kiev spent at least $6.5 billion on regional and fuel subsidies. If Moscow were to formally annex parts of eastern Ukraine, however, pressure to show new investment and a rapid improvement in residents’ quality of life could triple that figure. Last week, Russian officials talked about $1 billion in urgent economic aid to Crimea, with $5 billion for the region to be released throughout the year. Such proposals resemble Russia’s policy toward South Ossetia and Belarus: consciously wasting huge sums.

If Ukraine were to align with Russia, it could maintain subsidies, but there would be no prospects for growth. Driving toward Europe, however, could rejuvenate Ukraine. Kiev must follow the path of Poland, the Czech Republic and Slovakia.

By 1990, at the end of the Soviet era, the per-capita regional product of the Ukrainian Soviet Republic was 6 percent higher than that of socialist Poland. International Monetary Fund data from last fall show that Poland’s regional per-capita product is three times larger than Ukraine’s. Ukraine is the only post-Soviet nation that has not returned to the standard of living of the Soviet period, and it borders countries that live two to three times better than they did in socialist times. It is natural that Ukrainians see their future with Europe — not just because democracy is better than authoritarianism and the rule of law is superior to arbitrary rulings but also because E.U. investment and technologies could boost Ukraine’s economic development and make people more prosperous.

In seeking Ukraine’s eastern regions, Russia is fighting for an unjust cause in political terms — and a wrong one in economic terms. Lenin wrote that politics is the most concentrated expression of economics. If Vladi­mir Putin were to heed Lenin, he would see that integrating eastern Ukraine and Crimea into Russia, or their emergence as quasi-autonomous client states, would cost Moscow tens of billions each year in subsidies and create competition with Russian metal-processing, chemical, tourist and other businesses.

Russia has no economic growth, and its population is declining. It is losing about $70 billion a year in capital flight. Little wonder it is seeking to expand. Yet no matter how successful Putin’s military exercises may look, annexing Ukraine could hasten the end of his empire.

Audacious as it may seem, a European Ukraine without Crimea would do much better economically than a Ukraine that maintains its current borders and totters between Europe and Russia. In claiming eastern Ukraine, Russia is fighting for financially insolvent economies that resemble its own. Even if part of Ukraine votes to integrate into Russia, the losers would be area residents and Russians — not the Ukrainian nation.

Not surprising. And most amusing. Good economic discussion of the economic consequences of Russia annexiing Crimea.