Russia Prepares Tough Response to U.S. Sanctions

On Aug. 4, the U.S. State Department charged that Russian contracts with Iran to repair and upgrade 30 Su-24 bombers, sold in the 1990s, breach the U.S. "Iran Nonproliferation Act," regarding WMD-related sales to Iran. It issued an order, forbidding U.S. firms from doing business with Rosoboronexport (Russian Defense Exports, the state-owned weapons trade monopoly), and Sukhoy Aviation. Few U.S. companies do weapons business with Russia, but Sergei Chemezov, director of Rosoboronexport, told Itar-Tass that the sanctions "will tell on the effectiveness of the operations of the U.S. contingents in Iraq and Afghanistan." It is reported that automatic rifle sales to the Iraqi police, through American companies, could be hit. Also, Rosoboronexport could lose money from having to shift some of its dollar-denominated financial transactions out of New York banks.

Defense Minister Sergei Ivanov responded, "I can state definitely that these sanctions have no relation whatsoever to the issue of nonproliferation," adding that Russian military-technical sales are "in strict compliance with rules of international law," and will not be stopped. The Russian Foreign Ministry called the accusations "yet another unlawful attempt to force foreign companies to act according to American domestic arrangements,... an obvious political and legal anachronism, especially when taken on fabricated pretexts."

While some press say the Iran angle was simply an excuse to punish Russia for its recent major arms deals with Venezuela, it is but one piece of the escalating attacks on Russia, starting with the Cheney speech in Vilnius in May, and the refusal to approve Russia for WTO membership, on the eve of the G-8 summit in St. Petersburg.

Russia is in the process of deciding on several major projects for which U.S. firms are bidding, and the new attacks from Washington may sway the decisions. Boeing was to landing a $3 billion sale of 787s to Russia, but Moscow could opt instead for the France's Airbus 350. Other possible retaliation could include the exclusion of Chevron and ConocoPhillips from participation in the huge Shtokman gas field project in the Barents Sea. Also, Boeing gets 40% of its titanium from the Russian state firm Avisma, and it may not be easily replaced—but Avisma is about to be sold to Rosoboronexport, one of the firms hit by the sanctions.

Another U.S. Affront to Russia—on Trade Preferences

"It seems the U.S. State Department wants to trigger a trade war with Russia," wrote the Russian RBC business wire service Aug. 9, in a commentary on the latest U.S. move vis-à-vis Moscow on trade matters. On Aug. 7, U.S. Trade Representative Susan Schwab announced that the annual review of the Generalized System of Preferences, allowing duty-free importation of a range of products from so-called "emerging" countries, could lead to the removal from GSP of some nations that don't meet certain standards. On Aug. 8, Schwab's office called for public comment, on limiting GSP benefits for countries whose shipments to the U.S.A. were in excess of $100 million in 2005, and which either account for greater than 1/4 of 1% of world exports, or can be classified as "upper-middle-income." Of the 133 GSP countries, this would affect Russia and 12 others (including India, Argentina, Brazil, Venezuela, Turkey, and South Africa). RIA Novosti analysts said that Russia stands to lose $1 billion a year from the shift. RBC linked the action to the previous week's imposition of U.S. sanctions against Russian defense industry companies, for certain sales to Iran, and to the non-approval of Russia's WTO application.

Washington Seeking To Undermine Russian Ruble-Denominated Trade Plans?

The Bush Administration is waging an "increasingly aggressive" campaign of "threats, inducements, and even sanctions" against Russia because of its plans to make energy and minerals deals with South Africa, Namibia, and Angola, and its recent arms/energy deal with Venezuela, wrote John Helmer from Moscow in a Mineweb story Aug. 7. Zimbabwe is also involved. In particular, Russia wants South Africa to sign on to the ruble-denominated energy markets ("petro-ruble") plan announced by President Vladimir Putin in his State of the Federation speech May 10. Helmer refers to "the Putin-Mbeki model" in a July 15 Mineweb article.

Putin is scheduled to be in South Africa Sept. 4-6 for a three-day working visit, and will then go to Angola. Russia is interested in such strategic metals as vanadium and manganese, and also in diamonds. South Africa wants Russian natural gas. Helmer writes that the finalizing of the Russia-Algeria deal for cooperation in natural gas exploration, technology, and marketing was postponed twice because of U.S. pressure, but was finalized Aug. 4.

Lethal Incidents Occur in Caucasus, Central Asia

A prosecutor was killed, and the local Internal Affairs Minister attacked Aug. 7 in Dagestan, in the Russian North Caucasus.

In Osh, Kyrgyzstan on Aug. 6, Kyrgyzstan and Uzbekistan security forces hit alleged members of the Islamic Movement of Uzbekistan, killing three, including a radical Islamist imam, whose funeral in Kyrgyzstan drew thousands the next day.