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#6 - JRL 7235
Business Week
June 30. 2003
Moscow Flexes Its Muscles
A new rivalry with the U.S. is emerging south of Russia
By Paul Starobin in Gyumri, Armenia, with Vladimir Mukhin in Moscow

To signal their determination to stand their ground in the South Caucasus, the Russians have chosen a magnificent and indeed hallowed spot: a centuries-old, stone-walled fortress in remote northwest Armenia, just across the border from Turkey. The military base, situated on a grassy hilltop overlooking the town of Gyumri, is ringed by a snow-capped garland of mountain peaks. Inside the facility is the latest in sophisticated Russian weaponry, including S-300 anti-aircraft missiles. Russian troops have been based here for more than 200 years, fighting alongside fellow Christian Armenians to protect this land from invading Muslim Turks. Resting in a nearby weed-strewn cemetery are the bones of Czarist as well as Soviet officers slain in battle.

In neighboring Georgia and Azerbaijan, also ex-Soviet republics, the beleaguered Russians are under pressure to reduce their presence as the Westward-looking countries shift security allegiances to the richer, more powerful U.S. But in Armenia, the Russians are digging in with a transfer of troops and communications equipment from Georgia. And that seems to suit the Armenians fine. "Historically, it is Russians who have protected Armenians," says Colonel Stepan Galstyan, a swarthy 40-year-old Soviet-trained fighter pilot who commands a nearby Armenian airbase in Gyumri. "Attacking this border means attacking Russia as well."

With U.S.-Russia relations soured by the Kremlin's bitter opposition to the U.S.-led war on Iraq, a new geopolitical rivalry is emerging for influence in a key region of importance to both countries. It's a duel not over ideology, in the mold of the Cold War, but for the loyalties of small, vulnerable states in perennial need of big-power protection from traditional enemies. The competition is focusing on the soft southern underbelly of the former Soviet Union, a broad swath of territory of which the South Caucasus is just one part. With Russia to the immediate north and Iran and Afghanistan to the immediate south, this suddenly vital region stretches across mountains, desert, and steppe for about 3,000 km from Kyrgyzstan, which is bordered by China, to Georgia, on the Black Sea.

Rich in Caspian Basin energy reserves but also a worrisome source of Islamic militancy, the once-Soviet "Southern Rim" became a global security priority for the Bush Administration after the September 11 attacks on New York and Washington. At first, Russian President Vladimir V. Putin, hopeful of achieving a new strategic partnership with President George W. Bush, acquiesced to an historic U.S. thrust that featured the establishment of America's first-ever military bases in the former Soviet Union, in Uzbekistan and Kyrgyzstan. Those bases were used in the U.S.-led campaign in Afghanistan to topple the Taliban, a war that Putin supported.

But the mood has shifted. The Iraqi war has left a legacy of rancor between the U.S. and Russia -- fueled by fresh Kremlin anxieties that Washington aims for a regime change in Iran, a Moscow ally. In this new environment, Putin is heeding the call of the hard-liners in his military and foreign policy establishment for an assertive policy aimed at bolstering diminished Russian political and military influence in the Southern Rim. It's all part of a strategy of selectively competing with the U.S. on some matters while seeking cooperation on others, such as Russia's hopes of participating in the building of missile defense systems.

True, this counterthrust is partly a matter of Russian national pride. In particular, it is almost unbearable for Moscow's political class to see the American sweep into the South Caucasus, which is a land of wine and sun to which Russian poets such as Pushkin have paid loving homage. But there are also practical policy aims. For one thing, the Kremlin aims to take the initiative in battling regional terrorism -- a problem that deeply concerns Moscow, which views the Chechen insurgency as nourished by a network of Islamic terror cells extending into neighboring Georgia and crisscrossing the southern underbelly region.

For another, Moscow aims to combat a surge in narcotics trafficking after the collapse of the Taliban made it possible for warlords in Afghanistan to resume cultivating the poppy crop there. Russia is a prime market for Central Asian-produced heroin. Moscow doesn't trust Washington to protect Russia from the threat of terrorist groups and drug smugglers.

Then, too, Putin wants to ensure that Caspian Basin energy resources and pipelines benefit Russia and not only Western multinationals and markets. "It's an absolute imperative for Russia to restore its control over this former Soviet Union territory and be able to operate independently of America in this region," says Vitaly Tretyakov, a prominent foreign policy analyst in Moscow.

With the Pentagon now developing plans to strengthen its own regionwide presence of 3,000 troops to as many as 12,000 and considering establishing a base in Azerbaijan, Moscow knows that it can't force the U.S. to quit the region. So Russia's strategy is to build up a kind of parallel security structure that rivals America's. Armenia is the anchor in the South Caucasus, while in Central Asia, Russia-leaning Tajikistan, as well as Kyrgyzstan, which is trying to cater to security requests from both Russia and the U.S., are the focus of a new buildup of Russian troops and hardware. And in the Caspian, the Russians are expanding their Caspian Fleet, the only place where the Russian Navy has grown over the last decade.

As ever, the oil prize is one reason for all the jousting. Caspian oil probably won't live up to its early touting as a new Saudi Arabia, but it appears to be at least another North Sea, with some 100 billion barrels of oil reserves, worth $2.7 trillion at current market prices. The problem is, the Caspian is landlocked. So, eager to develop a U.S.-friendly transport route skirting Russian, Armenian, and Iranian soil, Washington pushed hard for a pipeline, now under construction, that will run from Baku in Azerbaijan through Georgia -- both newly minted U.S. allies -- to the Turkish Mediterranean: The $3 billion project, led by BP (BP ) PLC, is expected to be completed by 2005.

Notwithstanding Russian opposition to this project, the U.S. is backing a new plan to build an under-the-Caspian segment linking Baku with the port of Aktau on the Caspian coast of oil-rich Kazakhstan. Russia sees this new American proposal as a rival to an already working oil pipeline stretching from Kazakhstan to the Russian Black Sea port of Novorossisk. Russia would lose transit fees and control over Caspian oil flows to the extent that the U.S.-backed alternative route became a competitor. With its expanded Caspian naval presence, Russia intends to send a signal both to the U.S. and to the Kazakhs that Russian views on future Caspian energy development must be taken seriously.

As anti-Americanism revives in Russia, such hawkish moves are politically popular for Putin, whose party faces parliamentary elections in December, with Putin running for reelection in March. Critics in military circles who had earlier regarded his security policies as soft are voicing their grudging approval. "I think Putin now realizes that political mistakes were made" in the Kremlin's initial acquiescence to the stationing of U.S. troops in former Soviet republics, says retired Russian Colonel-General Leonid Ivashov, formerly a senior Defense Ministry adviser on Russia's security policy toward the ex-Soviet republics. While denying that, an aide to Putin says that "there was a period of a certain weakness" toward the Southern Rim in the 1990s, with an inward-looking Russia seemingly paralyzed by the Soviet Union's abrupt collapse. "But now we are gaining speed again," says the aide. "It's a matter of Russia preserving its historical position in an area of strategic interest."

In a sign of its determination, Moscow is playing political hardball by exploiting such factors as the dependency of some ex-republics on Russia for their gas supplies. Impoverished, debt-ridden Kyrgyzstan, bereft of its own energy resources, was in no position to deny a Russian request to house a new Rapid Response Force, geared to fight terrorism and drug smuggling, at its Kant airbase, despite local political opposition to an expanded Russian presence in the country. The Russians will be rubbing shoulders with the Americans: Kant is only 30 kilometers from the U.S-manned Ganci airbase, also tasked with fighting terrorism. "We regard both countries as friendly states, as strategic partners," Kyrgyzstan President Askar Akaev told the Russian daily Nezavisimaya Gazeta in December.

In Armenia, Moscow not only controls the gas network, but in a recent debt-for-equity deal also gained control of key strategic assets, including an electricity-generation plant. And the Kremlin is firmly supportive of Armenian President Robert Kocharian, whose reelection was criticized as unfair by the U.S. and others. "Kocharian has become a captive of Russia, which aims to have a dependent partner in the South Caucasus," complains parliamentarian Vazgen Manukyan, a leader of the pro-Western political opposition in Yerevan, the capital.

Although Washington does not want to leave Armenia uncontested -- the U.S. recently launched a modest military aid program and championed NATO's first-ever training exercises on Armenian soil, starting on June 16 -- the Pentagon is wary of planting too big a foot on Moscow's turf. "We have no plans to replace the Russians as the security guarantors of Armenia," says Major Jeffrey Predmore, the defense attach at the American embassy in Yerevan.

That sounds reassuring. Still, in a fragile patch of the world, yet to recover from three separate wars in the 1990s in which complex national, ethnic, and religious disputes took violent turns, the perception of a duel for allegiance between Moscow and Washington could itself prove destabilizing. Georgian President Eduard A. Shevardnadze is seeking Washington's protection to ward off Putin's repeated threat to take unilateral military action to expel Chechen rebels hiding out in Georgia's neighboring Pankisi Gorge. To help out, the Pentagon last year sent in Green Berets to train Georgian troops in anti-terrorism operations. But the country remains weak and divided, with pro-Russian provincial leaders dominating in western Georgia. Moscow is also balking at giving up its Soviet-era Akhalkalaki defense base in a southern area heavily populated by ethnic Armenians. "The Georgians can't make the Russians leave," says Armenia's Colonel Galstyan, who snorts with disgust at post-Soviet Georgia's "betrayal" of its traditional protector in Moscow.

There's a danger of a similar political fracturing in Central Asia. The Russian buildup in Tajikistan and Kyrgyzstan is unnerving neighboring, U.S.-aligned Uzbekistan, run by an entrenched dictator, Islam Karimov, who supported the attack on Saddam Hussein's regime and who is receiving increased economic aid from Washington. Further, Karimov appears agreeable to an open-ended stationing of U.S. troops at their current base in Karshi, 200 kilometers from the Afghanistan border. There are no longer any Russian troops on Uzbekistan's soil, and Karimov is intent on ridding his own army of a pro-Russian faction, according to a high-ranking officer at the Defense Ministry. Moscow is livid: A Russian diplomat recently complained to Tashkent about the revision of school textbooks to depict the Russians as imperialist oppressors.

Of course, Russia's $350 billion economy is simply no match for America's trillions. That's why even Russia's stalwart allies, such as Armenia, are hedging their bets. Offered $4 million in aid by the Pentagon, Armenia is using the money to replace aging Soviet-era equipment with tactical radio sets made by U.S.-based Harris Corp. "The United States has money, and Russia does not," says Armenia's pragmatic Defense Minister, Serzh Sarkisyan. Russia's advantage? History, proximity, and a fierce desire to reassert Moscow's influence. Those will all come into play as the contest in the Southern Rim heats up once more.

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