Consider Russia's national interest by Katinka Barysch

Consider Russia's national interest

by Katinka Barysch, Centre for European Reform
published: 31 october 2002

Is Russia being narrow minded and selfish in resisting US requests for a tough resolution on Iraq in the UN Security Council? Many American commentators seem to think so. They make little difference between Russia's tactics and those of France, which is equally opposed to a resolution that automatically authorises the US to use force if Saddam Hussein once again defies UN weapons inspectors. In fact, Russia and France are unlikely allies. Russia is, and will remain to be, committed to its improved relations with the US. But the US could help a swift and mutually satisfactory resolution to the current standoff if it acknowledged that a war on Iraq touches on Russia's national interest.

Russia's pragmatic president, Vladmir Putin, has long argued that good relations with the West are in Russia's own best interest. Putin's main task is to re-build the country's ailing economy and lift its people out of poverty and deprivation. For this, he needs the political and financial support of the world's richer countries. The terrorist attacks of September 2001 presented Putin with an opportunity to prove his pro-Western credentials.

Since then, he has staunchly stuck to this course, ignoring criticism from his own generals and diplomats. This has not always been easy, especially since Russia had to discard many of its long-standing security doctrines over the course of the last year. The US has build up a military presence in Russia's strategic backyard, namely Central Asia and the Caucasus. It has walked away from the ABM treaty. And it has sanctioned NATO's expansion to Russia's doorstep.

The Putin administration has weathered these challenges. But in the case of Iraq, Russia has not only political but also economic interests at stake, which makes its position much more difficult. Politically, Russia may well want to compromise and support a strong UN resolution - or at least abstain from using its veto in the Security Council. Although Russia has stronger ties with Iraq than most other countries, the Putin administration has little sympathy for the regime of Saddam Hussein. Iraq clearly needs Russia more than Russia needs Iraq. For Moscow, the choice between backing a bankrupt Middle Eastern dictator and strengthening its ties with the world's only remaining superpower is a relatively easy one.

However, like the European countries, Russia does not want the US to act unilaterally. With a decaying army and a collapsed economy, Russia has few levers of power left on the international scene. Its veto in the UN security council is one of them. Putin is therefore strongly opposed to any US action that would undermine the multilateral UN system.

What Russia fears most, however, is the economic consequences of war in the Middle East. Russian companies have signed multi-billion dollar contracts with Iraq, not only for the joint exploitation of the country's oil resources, but also in other areas, such as transport and industry. Iraq also owes Russia some 7bn dollar. But both commercial contracts and sovereign debt pale into insignificance compared with the impact that a sharp fall in oil prices would have on the Russian economy.

After years of industrial decline, Russia's economy is now even more heavily dependent on oil and gas than it was at the end of the Soviet period. The oil sector pays for half of the country's investment and one-fifth of its national budget. For each one-dollar rise in international oil prices, Russia nets 1bn dollar through its current account. Impressive economic growth rates over recent years were chiefly driven by high oil prices since 1999.

Russia fears that a military action against Iraq could push oil prices to as low as 10 dollars per barrel as oil traders expect Iraqi oil to flood back onto the world market. Collapsing oil prices would stall Russia's fragile economic recovery and leave a gaping hole in its budget. The timing could not be worse for Russia. In 2003 the country faces record external debt repayments. It also prepares for parliamentary elections at the end of 2003 and parliamentary ones in early 2004. Not surprisingly, Russia prefers a slow, political solution to the Iraq question to a messy, perhaps prolonged military one that could play havoc with international oil markets.