STRATFOR REPORT: Obama Enters the Great Game

Obama Enters the Great Game
By George Friedman
Stratfor
www.stratfor.com

U.S. President-elect Barack Obama will be sworn in on Tuesday as president of the United States. Candidate Obama said much about what he would do as president; now we will see what President Obama actually does. The most important issue Obama will face will be the economy, something he did not anticipate through most of his campaign. The first hundred days of his presidency thus will revolve around getting a stimulus package passed. But Obama also is now in the great game of global competition — and in that game, presidents rarely get to set the agenda.

The major challenge he faces is not Gaza; the Israeli-Palestinian dispute is not one any U.S. president intervenes in unless he wants to experience pain. As we have explained, that is an intractable conflict to which there is no real solution. Certainly, Obama will fight being drawn into mediating the Israeli-Palestinian conflict during his first hundred days in office. He undoubtedly will send the obligatory Middle East envoy, who will spend time with all the parties, make suitable speeches and extract meaningless concessions from all sides. This envoy will establish some sort of process to which everyone will cynically commit, knowing it will go nowhere. Such a mission is not involvement — it is the alternative to involvement, and the reason presidents appoint Middle East envoys. Obama can avoid the Gaza crisis, and he will do so.


Obama’s Two Unavoidable Crises

The two crises that cannot be avoided are Afghanistan and Russia. First, the situation in Afghanistan is tenuous for a number of reasons, and it is not a crisis that Obama can avoid decisions on. Obama has said publicly that he will decrease his commitments in Iraq and increase them in Afghanistan. He thus will have more troops fighting in Afghanistan. The second crisis emerged from a decision by Russia to cut off natural gas to Ukraine, and the resulting decline in natural gas deliveries to Europe. This one obviously does not affect the United States directly, but even after flows are restored, it affects the Europeans greatly. Obama therefo re comes into office with three interlocking issues: Afghanistan, Russia and Europe. In one sense, this is a single issue — and it is not one that will wait.

Obama clearly intends to follow Gen. David Petraeus’ lead in Afghanistan. The intention is to increase the number of troops in Afghanistan, thereby intensifying pressure on the Taliban and opening the door for negotiations with the militant group or one of its factions. Ultimately, this would see the inclusion of the Taliban or Taliban elements in a coalition government. Petraeus pursued this strategy in Iraq with Sunni insurgents, and it is the likely strategy in Afghanistan.

But the situation in Afghanistan has been complicated by the situation in Pakistan. Roughly three-quarters of U.S. and NATO supplies bound for Afghanistan are delivered to the Pakistani port of Karachi and trucked over the border to Afghanistan. Most fuel used by Western forces in Afghanistan is refined in Pakistan and delivered via the same route. There are two crossing points, one near Afghanistan’s Kandahar province at Chaman, Pakistan, and the other through the Khyber Pass. The Taliban have attacked Western supply depots and convoys, and Pakistan itself closed the routes for several days, citing government operations a gainst radical Islamist forces.

Meanwhile, the situation in Pakistan has been complicated by tensions with India. The Indians have said that the individuals who carried out the Nov. 26 Mumbai attack were Pakistanis supported by elements in the Pakistani government. After Mumbai, India made demands of the Pakistanis. While the situation appears to have calmed, the future of Indo-Pakistani relations remains far from clear; anything from a change of policy in New Delhi to new terrorist attacks could see the situation escalate. The Pakistanis have made it clear that a heightened threat from India requires them to shift troops away from the Afghan border and toward the east; a small number of troops already has been shifted.

Apart from the direct impact this kind of Pakistani troop withdrawal would have on cross-border operations by the Taliban, such a move also would dramatically increase the vulnerability of NATO supply lines through Pakistan. Some supplies could be shipped in by aircraft, but the vast bulk of supplies — petroleum, ammunition, etc. — must come in via surface transit, either by truck, rail or ship. Western operations in Afghanistan simply cannot be supplied from the air alone. A cutoff of the supply lines across Pakistan would thus leave U.S. troops in Afghanistan in crisis. Because Washington can’t predict or control the future actions of Pakistan, of India or of terrorists, the United States must find an alternative to the routes through Pakistan.

When we look at a map, the two routes through Pakistan from Karachi are clearly the most logical to use. If those were closed — or even meaningfully degraded — the only other viable routes would be through the former Soviet Union.

One route, along which a light load of fuel is currently transported, crosses the Caspian Sea. Fuel refined in Armenia is ferried across the Caspian to Turkmenistan (where a small amount of fuel is also refined), then shipped across Turkmenistan directly to Afghanistan and through a small spit of land in Uzbekistan. This route could be expanded to reach either the Black Sea through Georgia or the Mediterranean through Georgia and Turkey (though the additional use of Turkey would require a rail gauge switch). It is also not clear that transports native to the Caspian have sufficient capacity for this.

Another route sidesteps the issues of both transport across the Caspian and the sensitivity of Georgia by crossing Russian territory above the Caspian. Kazakhstan, Uzbekistan (and likely at least a small corner of Turkmenistan) would connect the route to Afghanistan. There are options of connecting to the Black Sea or transiting to Europe through either Ukraine or Belarus.

Iran could provide a potential alternative, but relations between Tehran and Washington would have to improve dramatically before such discussions could even begin — and time is short.

Many of the details still need to be worked out. But they are largely variations on the two main themes of either crossing the Caspian or transiting Russian territory above it.

Though the first route is already partially established for fuel, it is not clear how much additional capacity exists. To complicate matters further, Turkmen acquiescence is unlikely without Russian authorization, and Armenia remains strongly loyal to Moscow as well. While the current Georgian government might leap at the chance, the issue is obviously an extremely sensitive one for Moscow. (And with Russian forces positioned in Azerbaijan and the Georgian breakaway regions of Abkhazia and South Ossetia, Moscow has troops looming over both sides of the vulnerable route across Georgia.) The second option would require crossing Russian territory itself, with a number of options — from connecting to the Black Sea to transiting either Ukraine or Belarus to Europe, or connecting to the Baltic states.


Both routes involve countries of importance to Russia where Moscow has influence, regardless of whether those countries are friendly to it. This would give Russia ample opportunity to scuttle any such supply line at multiple points for reasons wholly unrelated to Afghanistan.

If the West were to opt for the first route, the Russians almost certainly would pressure Azerbaijan and Turkmenistan not to cooperate, and Turkey would find itself in a position it doesn’t want to be in — namely, caught between the United States and Russia. The diplomatic complexities of developing these routes not only involve the individual countries included, they also inevitably lead to the question of U.S.-Russian relations.

Even without crossing Russia, both of these two main options require Russian cooperation. The United States must develop the option of an alternative supply route to Pakistan, and in doing so, it must define its relationship with Russia. Seeking to work without Russian approval of a route crossing its "near abroad" will represent a challenge to Russia. But getting Russian approval will require a U.S. accommodation with the country.


The Russian Natural Gas Connection

One of Obama’s core arguments against the Bush administration was that it acted unilaterally rather than with allies. Specifically, Obama meant that the Bush administration alienated the Europeans, therefore failing to build a sustainable coalition for the war. By this logic, it follows that one of Obama’s first steps should be to reach out to Europe to help influence or pressure the Russians, given that NATO has troops in Afghanistan and Obama has said he intends to ask the Europeans for more help there.

The problem with this is that the Europeans are passing through a serious crisis with Russia, and that Germany in particular is involved in trying to manage that crisis. This problem relates to natural gas. Ukraine is dependent on Russia for about two-thirds of the natural gas it uses. The Russians traditionally have provided natural gas at a deep discount to former Soviet republics, primarily those countries Russia sees as allies, such as Belarus or Armenia. Ukraine had received discounted natural gas, too, until the 2004 Orange Revolution, when a pro-Western government came to power in Kiev. At that point, the Russians began demanding full payment. Given the subsequent rises in global energy prices, that left Ukraine in a terrible situation — which of course is exactly where Moscow wanted it.

The Russians cut off natural gas to Ukraine for a short period in January 2006, and for three weeks in 2009. Apart from leaving Ukraine desperate, the cutoff immediately affected the rest of Europe, because the natural gas that goes to Europe flows through Ukraine. This put the rest of Europe in a dangerous position, particularly in the face of bitterly cold weather in 2008-2009.

The Russians achieved several goals with this. First, they pressured Ukraine directly. Second, they forced many European states to deal with Moscow directly rather than through the European Union. Third, they created a situation in which European countries had to choose between supporting Ukraine and heating their own homes. And last, they drew Berlin in particular — since Germany is the most dependent of the major European states on Russian natural gas — into the position of working with the Russians to get Ukraine to agree to their terms. (Russian Prime Minister Vladimir Putin visited Germany last week to discuss this directly with German Chancellor Angela Merkel.)

The Germans already have made clear their opposition to expanding NATO to Ukraine and Georgia. Given their dependency on the Russians, the Germans are not going to be supporting the United States if Washington decides to challenge Russia over the supply route issue. In fact, the Germans — and many of the Europeans — are in no position to challenge Russia on anything, least of all on Afghanistan. Overall, the Europeans see themselves as having limited interests in the Afghan war, and many already are planning to reduce or withdraw troops for budgetary reasons.

It is therefore very difficult to see Obama recruiting the Europeans in any useful manner for a confrontation with Russia over access for American supplies to Afghanistan. Yet this is an issue he will have to address immediately.

The Price of Russian Cooperation

The Russians are prepared to help the Americans, however — and it is clear what they will want in return. At minimum, Moscow will want a declaration that Washington will not press for the expansion of NATO to Georgia or Ukraine, or for the deployment of military forces in non-NATO states on the Russian periphery — specifically, Ukraine and Georgia. At this point, such a declaration would be symbolic, since Germany and other European countries would block expansion anyway.

The Russians might also demand some sort of guarantee that NATO and the United States not place any large military formations or build any major military facilities in the former Soviet republics (now NATO member states) of Estonia, Latvia and Lithuania. (A small rotating squadron of NATO fighters already patrols the skies over the Baltic states.) Given that there were intense anti-government riots in Latvia and Lithuania last week, the stability of these countries is in question. The Russians would certainly want to topple the pro-Western Baltic governments. And anything approaching a formal agreement between Russia and the United States on the matter could quickly destabilize the Baltics, in addition to very much weakening the NATO alliance.

Another demand the Russians probably will make — because they have in the past — is that the United States guarantee eventual withdrawal from any bases in Central Asia in return for Russian support for using those bases for the current Afghan campaign. (At present, the United States runs air logistics operations out of Manas Air Base in Kyrgyzstan.) The Russians do not want to see Central Asia become a U.S. sphere of influence as the result of an American military presence.

Other demands might relate to the proposed U.S. ballistic missile defense installations in the Czech Republic and Poland.

We expect the Russians to make variations on all these demands in exchange for cooperation in creating a supply line to Afghanistan. Simply put, the Russians will demand that the United States acknowledge a Russian sphere of influence in the former Soviet Union. The Americans will not want to concede this — or at least will want to make it implicit rather than explicit. But the Russians will want this explicit, because an explicit guarantee will create a crisis of confidence over U.S. guarantees in the countries that emerged from the Soviet Union, serving as a lever to draw these countries into the Russian orbit. U.S. acquiescence on the point potentially would have ripple effects in the rest of Europe, too.

Therefore, regardless of the global financial crisis, Obama has an immediate problem on his hands in Afghanistan. He has troops fighting there, and they must be supplied. The Pakistani supply line is no longer a sure thing. The only other options either directly challenge Russia (and ineffectively at that) or require Russian help. Russia’s price will be high, particularly because Washington’s European allies will not back a challenge to Russia in Georgia, and all options require Russian cooperation anyway. Obama’s plan to recruit the Europeans on behalf of American initiatives won’t work in this case. Obama does not want to start his administration with making a massive concession to Russia, but he cannot afford to leave U.S. forces in
Afghanistan without supplies. He can hope that nothing happens in Pakistan, but that is up to the Taliban and other Islamist groups more than anyone else — and betting on their goodwill is not a good idea.

Whatever Obama is planning to do, he will have to deal with this problem fast, before Afghanistan becomes a crisis. And there are no good solutions. But unlike with the Israelis and Palestinians, Obama can’t solve this by sending a special envoy who appears to be doing something. He will have to make a very tough decision. Between the economy and this crisis, we will find out what kind of president Obama is.And we will find out very soon.

Alexander Nevsky is the Face of Russia

Alexander Nevsky, who is best-known for stopping the advance of Swedish and Teutonic Knights into Russia in the 13th century, narrowly defeated 20th-century reformer and tsarist Prime Minister Pyotr Stolypin in the ""Face of Russia,"" a controversial seven-month contest on state-run Rossia television.

Alexander Nevsky was the prince of Novgorod and Kiev and grand prince of Vladimir, he tallied 524,575 votes in the contest. He edged out Stolypin -- generally better known for having been murdered by a Russian terrorist than for his unfinished reforms -- who finished with 523,766 votes. The contest is the Russian equivalent of the BBC program "Great Britons."Soviet dictator Joseph Stalin finished third, with 519,671 votes, while poet Alexander Pushkin finished fourth. A total of more than 50 million votes were cast.

Peter the Great and the founder of the Soviet Union, Vladimir Lenin, both managed to make it into the final round of 12 personalities.

Russia/Ukraine Gas Dispute Continues

Russian and Ukrainian officials continue to bicker over a deal leading to the resumption of Russian gas supplies, squelching hopes for an end to a dispute leaving parts of Europe in the cold and dark.

Russia wants monitors in place to prevent what it described as Ukraine's theft of supplies meant for Europe — a charge Kiev hotly denies.

Ukraine's President Viktor Yushchenko rejected the notion.

Gazprom halted all natural gas shipments through Ukraine on Wednesday, ending or reducing gas supplies to more than a dozen European nations amid a pricing dispute with Kiev. For years since the break-up of the Soviet Union Russia has sold gas to Ukraine and some other ex-Soviet neighbors at prices significantly less than European prices.

Russian President Medvedev has said that Ukraine should pay a European price for the Russian gas. Last year, Russia charged Ukraine $179.50 per 1,000 cubic meters, about half what it charged its European customers. Russia's last offer before talks broke down was $250, but Gazprom said the offer no longer stands after Ukraine rejected it and that it will charge Ukraine $450.

EU governments have criticized both Russia and Ukraine for the gas crisis, saying it was unacceptable to see homes unheated, businesses closed and schools shut down in the middle of winter because of the commercial squabble.

Russia, Ukraine and the EU all said the final agreement could be finalized soon, but officials remained coy about what prevented the deal from being completed Friday as hoped.

U.S. and Georgia Sign Alternative Route to NATO

The Bush administration and the government of Georgia wasted paper today when they signed a supposed agreement for an alternate route for Georgia into NATO. Why do I call this a waste of paper? Well for one big reason, there is only one route into NATO, and it requires all member nations agreeing. Condoleeza Rice may want to act like she did something today, but in the end she is not going to get around the fact that she needs Germany and Italy to agree to allowing Georgia into NATO, and they never will.

Watch the news report here:

Putin Hosts Live Q&A Broadcast in Russia

Prime Minister Vladimir Putin promised Russians economic prosperity and the prospect of warmer relations with the U.S. in a live three-hour question-and-answer session Thursday that showcased him as Russia's most powerful leader.

The nationally broadcasted call-in show was the seventh for Putin. Current Russian President Mikhail Medvedev has kept a lower profile and has not held such call-in show.

It was an interesting three hours as the Prime Minister showed his countries teeth to Russia's foes, while making every effort to sound paternal and kind to the home audience. He promised apartments to military officers, support to the unemployed, free medicines to retirees and higher wages to all Russians. Putin pledged that the government would be able to prevent a drop in living standards and implement earlier plans for salary and pension increases. He said the Russian economy was expected to post almost 7 percent growth this year despite the crisis, and promised that wages and pensions will rise by 12 percent.

"We have every opportunity to get through this difficult period with minimal problems."

Putin said Russia's currency reserves, the world's third-largest, would be sufficient to cushion the effects of the financial crisis.

Prime Minister Putin also spoke about the ruble. He said Russia will avoid “sharp” swings in the ruble by using its $454.9 billion of reserves to support the currency. The nation’s cash pool rose last week for the first time in two months, the central bank said yesterday.

We will most likely see more gradual devaluations of around 1 percent at a time, and we could see the ruble 15 percent weaker against the basket in six months and 20 percent weaker in 12 months.

Prime Minister Putin wrapped up the carefully choreographed session by taking a long string of questions sent in advance, ending with one asking what he loves most. His answer was simply "Russia."

Ruble Slides in Value

Russia weakened its defense of the ruble for a fourth time in a month, pushing the currency near a three-year low against the dollar, as the price of the nation’s crude oil fell by a record this week to less than $40 a barrel.

Russia has already raised interest rates twice last month and drained $143 billion from its foreign-currency reserves to arrest a 17 percent drop in the ruble since August as oil had plunged in value. Urals crude, Russia’s main export blend, slumped 20 percent this week to $39.82 a barrel, below the $70 average needed to balance Russia’s 2009 budget.

Russia is the world’s largest energy producer and the worldwide recession is cutting the value of commodities around the world.

Russia is facing its worst financial crisis since the government defaulted on $40 billion of debt a decade ago, prompting a 71 percent ruble devaluation against the dollar that eroded bank deposits.

Economist Nouriel Roubini: Ruble Should Be 10-20% Weaker as Oil Prices Drop,

In an interview with Bloomberg News, Nouriel Roubini said he sees oil prices falling a further 20%, which will hurt the Russian economy.

In his interview from Moscow, Nouriel Roubini said, "With most commodity currencies, like in Canada, Australia, when the price of commodities falls, the currency automatically weakens.” His suggestion is that the Ruble should be 10-20% weaker as oil prices drop.

In the interview he said Bank Rossii, Russia’s central bank, should stop selling foreign currency to support the ruble.

“At this point it’s better to let the currency depreciate gradually.”