Prepared Testimony by Eugene Rumer Before the House International Relations Committee Hearing: Russian Policy Toward Iraq, Iran and North Korea

February 26, 2003

As the United States continues to mobilize international coalition in support of decisive action in Iraq, questions about Russian policy toward the "axis of evil" abound. What drives Russian policy in Iraq? What are Russia's interests in Iran and more broadly in the Persian Gulf?. What are the options before U.S. policymakers to encourage responsible Russian behavior in the unfolding crisis? These, as well as several other questions about Russian foreign policy and policy- making are the subject of this written testimony.

A New Foreign Policy

Since the breakup of the Soviet Union, Russian policy in many regions has been adrift, motivated by an add-hock mixture of commercial, domestic political and--occasionally --geopolitical considerations. Many of these considerations have had little to do with any given region of the world, but a lot to do with the vagaries of Russia's own domestic environment. Russian policy in the Persian Gulf has been no exception to this general rule.

The end of the Cold War and the global confrontation with the United States left Russian foreign policy without a clear sense of direction. The Persian Gulf-a region where Moscow's interests had been defined for decades by the general framework of U.S.-Soviet competition- ended up on the margins of Russian foreign policy.

The reason for this could be found in Russia's domestic decline. In the period following the breakup of the Soviet Union- a time of profound economic, political and societal crises- foreign policy took a back seat to concerns nearer to home. Which in turn meant that Russian foreign policy priorities shifted to three key areas:

First, Russian foreign policy focused on the former republics of the Soviet Union. Building new relationships with them and sorting out Russian interests in these new states had been a major Russian concern throughout the 1990s and remains an important issue for Russia' s foreign policy establishment today.

The second key concern of Russian foreign policymakers in the wake of the Soviet breakup was re-building relations with the major powers and the United States in particular. This concern had a crucial domestic dimension: good relations with key economic powers of the world were seen by Russian policymakers as a prerequisite for economic assistance, which Russia's shattered economy badly needed.

The third area of concern was upholding Russia's great power image. Besides their financial aspects, relationships with United States and other major industrialized nations were important to Russian political elites because of Russia's own residual great power ambitions and traditions. Keeping up the pretense of great powerdom was important for the Russian public, long accustomed to living in a bipolar world and seeing their country as a superpower second to none.

Many other regions and countries received relatively little attention from Russian policymakers. Former Soviet clients in the Middle East and elsewhere-Iraq, Syria, North Korea, Cuba-which had long been recipients of Soviet assistance, were now of little use to the new Russian state. Russia had no resources to commit to non-essential projects, while prospects for collecting old debts from former clients looked quite dim, considering their own shaky circumstances.

The importance and value of these former client states to Russia was measured not by the extent of Russia's own interests in them, but by the extent to which they mattered to other powers. In effect these states became Russia's bargaining chips in pursuit of its objectives elsewhere. The end of the Cold War left Moscow without a compelling interest in the Middle East. As an oil exporter, Russia did not need Middle Eastern oil. Russian oil industry was undergoing the process of privatization. The Russian oil sector thus focused on internal, rather than external factors affecting its development. Russia had few cultural ties to the region, except for Israel, where a large number of ex-Soviet Jews had found refuge from Soviet anti-Semitism and postSoviet instability. Russian commercial ties to the Middle East were weak, for Russia had few exports of interest to the region, except for its arms, which it could now ill-afford to subsidize and which would have to compete with other weapons exporters. Russia's military decline denied Moscow the ability to project power and influence into the region. The notion of sponsoring client states in the Middle East in pursuit of geopolitical designs was out of the question.

A Policy-Making Free-for-All

Any effort to understand and explain Russian policy in the Middle East has to ask how Russian policy is made. Who shapes Russian foreign policy?

The old Soviet foreign policy-making process described in textbooks about the Soviet system became obsolete when the Soviet Union collapsed. The old established institutions, like the Foreign Ministry, carried on into the new era, but in radically diminished circumstances, defined by the new political and economic realities of post-Soviet Russia. Once the conservative bastion of Soviet ideological purity and privilege, the Foreign Ministry could no longer command the resources it once had at its disposal. In an atmosphere of near-permanent domestic crises that engulfed Russia in the early- 1990s, the Foreign Ministry lost its best and brightest to banks, commercial ventures and foreign businesses.

At the same time, the opening of Russia's domestic politics presented opportunities for new players to enter the policy-making arena, including in foreign policy. In the chaotic environment of the 1990's, the establishment of new bureaucratic structures designed to bring order to Russian policy-making, had produced the opposite result. Instead of coordinating policy, these new structures only added new voices to an already unruly choir.

For example, the establishment of the Security Council under President Boris Yeltsin made it possible for MINATOM --Russia's Atomic Energy Ministry--to gain unprecedented access to foreign policy deliberations. The Minister of Atomic Energy was given a seat at the Security Council. This appointment gave his agency additional clout and enabled it to bypass normal interagency review procedures.

The ranks of new entrants into the foreign policy-making process included a number of government agencies, such as MINATOM and the Fuels and Energy Ministry; as well as private or quasi-private, corporate entities such as Gazprom, the giant natural gas monopoly; several privatized oil companies; weapons exporters; and others with diverse commercial and geographic interests abroad.

The influence of new players on foreign policy-making was the result of a trend that was unfolding throughout Russia--the "clanization" of Russia--the emergence of powerful clans, or financial-industrial groups bound together by common property or commercial interests, as well as political or bureaucratic patronage, competing for more property and resources in Russia's giant privatization.

As clans consolidated around major economic assets, bureaucratic entities, or political figures, Russian domestic politics organized too around these power centers, which in turn began to exercise influence on the policy-making process to advance their own parochial interests. Russian political process therefore developed largely as a competition among clans for power and resources.

This transformation has had a profound impact on virtually every aspect of Russian policymaking, including foreign policy. The Foreign Ministry still retained nominal authority over the foreign policy process. But it no longer had the monopoly on the process, and other players-government agencies and corporate players--began to exercise considerable influence on it.

The entry of new players into the foreign policy-making arena occurred as Russia still struggled with a succession of economic crises. With its economy in decline throughout the 1990's, its finances fragile (to the point of collapse in 1998) and attempts at reform sputtering, economic considerations weighed heavily on the minds of Russian policy-makers. In this setting, relations with other states took on a distinct utilitarian overtone.

As was mentioned in the preceding paragraphs, relations with the United States and other major industrialized powers revolved around the questions of aid and economic assistance. In relations with nations where no aid was available, Russian policy-makers focused on commercial opportunities for Russian companies, eager to sell their wares. This was especially the case with companies, which had limited or nonexistent domestic markets. Thus, throughout the 1990's Russian foreign policy underwent the process of commercialization. In other words, Russian interests in many countries became a function of Russia's ability to export there. The search for market access, driven by dire economic conditions at home, became the paramount concern in relation to virtually all other considerations. Thus, the prospect of a sale to a rogue nation with a clear and unambiguous threat of U.S. sanctions as a consequence, and jeopardy for U.S. assistance potentially costing Russia hundreds of millions of dollars in foregone aid, was hardly a deterrent to Russian corporate or government players seeking to pocket millions from the deal. One company's, or clan's, commercial interest would go directly against Russia's larger economic interest, but what did it matter in the chaotic atmosphere of the 1990's?

The record of the last ten years is littered with examples of such behavior by Russian corporate entities- Gazprom's, MINATOM's and various Russian weapons manufacturers' deals in Iran stand out as the most notorious ones. With millions of Russians unemployed in the vast defenseindustrial sector and nuclear industry, what Russian political leader will challenge those who claim to have opened new markets abroad?

An Entrenched System

After a full decade of domination of Russian politics and policy- making by clans, change is likely to come slowly if at all. The new power centers in Russian politics--clans--have taken full advantage of the government's weakness and forged close links with the career bureaucracy, which the Russian government inherited from the Soviet Union. Together they have formed a formidable coalition.

The transition from President Boris Yeltsin to President Vladimir Putin in 2000 prompted expectations that the new Russian leader would restore order to Russian politics and policymaking. The sheer change in perceptions between Yeltsin's erratic persona and Putin's measured forcefulness convinced many of the latter's ability to execute such a turnaround.

Indeed, Putin has cracked down on the most independent and politically ambitious clans and their most visible leaders, known colloquially as the "oligarchs." He was equally successful in putting new restraints on mass media and regional governors. But he has been unable to change the clanbased system.

Putin himself is a product of that system, having emerged from obscurity to the presidency of Russia in just a few months, propelled to the top by the money and political prowess of the Yeltsin family clan, known otherwise as the "family." Despite better economic performance on his watch and his high personal popularity, Putin's tenure has been marked by a number of highprofile failures that suggest that his power to alter the system, which propelled him to the top, is limited at best.

Opposition to Putin's reform throughout the Russian government and economy is fierce. Repeated testimonies from senior Russian government officials in charge of the economy refer to their inability to overcome the power of the bureaucracy, often aligned with equally powerful commercial interests. Putin himself has referred on a number of public occasions to the need for a far-reaching government reform.

Nothing demonstrated Putin's isolation in the domestic political arena more than his unprecedented offer of partnership and cooperation in the aftermath of the September 11 tragedy. His offer of partnership to President George W. Bush was clearly at odds with public statements of virtually all of his known advisors. In his outreach to the United States following the September 11 attacks, President Putin went far beyond what the political establishment in Moscow was comfortable with at the time.

ln his foreign and security policy, President Putin is dealing with an established system, dominated by entrenched corporate and bureaucratic power centers. Within that system, he has only limited ability to adjudicate among competing lobbies, and between their commercial interests and the common good. As President of Russia he may well be inclined to curtail the nuclear relationship with Iran because of its obvious negative implications for Russian security. His powers to do so are likely to be quite limited, given the nature of the system, which propelled him to the presidency of Russia.

Russian Stakes in the Middle East

Russian policy in the Middle East is a hostage to a multitude of Russian concerns, many of them easily identifiable--the defense- industrial lobby and the energy lobby-but others less obvious come to mind as well.

As the world's premier oil producing region and home to a uniquely well-funded arms bazaar, the Persian Gulf is enormously important to Russian oil producers and weapons manufacturers. For the former, as well as for Russia's national treasury (given the prominent place of energy exports in the country's foreign trade and economy in general), what happens in the Gulf and how it impacts the price of oil can mean all the difference between economic survival and collapse. The oil industry in Russia has undergone the process of privatization and begun to expand its horizons to deal with matters of foreign and security policy that bear on its interests as a sector.

For Russia's defense industrial complex, the cash-rich Gulf states are among the most prized customers as domestic procurement orders have largely dried up as a result of Russian economic crises of the 1990s. Export markets became a way- for some the only way--to survive for the once-mighty Russian defense sector.

As was mentioned earlier, MINATOM, or the Atomic Energy ministry has also taken a strong interest in Russian policy in the Gulf. MINATOM, in particular, has played a key role in shaping and sustaining Moscow's relationship with Tehran through its pursuit of the Bushehr nuclear power plant project. Indeed, it would be difficult to name another corporate or bureaucratic player in the contemporary Russian political landscape whose influence on foreign and national security policy rivals that of MINATOM.

Russian weapons manufacturers have a powerful stake in Iraq. The latter owes Russia $7 billion for past weapons deliveries, which the Russian side still hopes to collect. Beyond that, Iraq is an attractive future market for their wares once the sanctions regime is removed. It has a long tradition of buying Soviet equipment. Both new equipment purchases and contracts to upgrade existing systems are a source of high hopes of Russian defense industrialists and exporters. Coupled with Iraq's ability to finance its purchases with oil revenues, these hopes have resulted in a powerful domestic pro-Iraqi lobby in Russia.

Russian oil companies have a more complicated agenda in the Gulf. Latecomers to the global energy scene as private corporations, Russian oil companies are not major international players and have little to offer most Gulf oil producers, who enjoy long-established business relationships with international oil companies. Russian companies do not possess the technology, business acumen or easy access to capital to offer to Persian Gulf states. As a result, they have a wary outlook on the Gulf- their major competitor in the international oil market, which they cannot control, but are heavily dependent upon because of its influence in setting the price of oil in the international marketplace.

Instability in the Gulf could further exacerbate the latent tensions between Gulf and Russian oil producers. Russian oil companies have long sought to position themselves as the alternative and far more reliable source of energy to key markets, especially in Europe and even the United States. Russia's success in this regard could prove harmful to its relations with Persian Gulf oil exporters. Russian oil interests have a wary view of OPEC. Reluctant to join it for fear of having to abide by its rules, Russian oil majors have preferred to cooperate with it episodically, depending on their own needs. They have certainly shown little propensity to exercise restraint or sacrifice their own commercial interest for the sake of advancing those of OPEC members.

Iraq is an important exception in this context. For Russian oil companies, Iraq represents an attractive business opportunity -- Iraqi oil is a good deal more accessible and cheaper to produce than oil from fields in remote regions of Russia, which is yet to be explored and developed. Russia's special relationship with Saddam Hussein has put Russian companies in an advantageous position for political, rather than commercial reasons.

Thus, a handful of Russian oil companies have--depending on the mood of the Iraqi regime-- held potentially lucrative contracts to develop oil fields in Iraq, once the sanctions regime is removed. Fully cognizant of the political motivations behind Saddam's decision to award these contracts to Russian companies in the first place, Russian oil industry leaders and analysts suspect that in the event of regime change in Baghdad, Russian companies will be among the losers in the Iraqi oil sweepstakes--Saddam's successors will be more likely to reward their backers with lucrative contracts. Such concerns in turn generate further suspicions among Russian oil industry executives about the true motives behind the U.S. goal of regime change in Iraq.

Russia's professional national security bureaucracy's interest in the Gulf is of a less material nature. Lacking a concrete commercial interest, this group has not come to terms with the loss of superpower status. It harbors deep resentment of the United States and its preeminent position in the world--as well as in the Persian Gulf--and sees it in Russia's national interest to oppose the United States, to undercut its influence and initiatives in the region regardless of their impact on Russian security or well-being. Thus, this group's outlook is shaped by traditional, albeit outmoded, geopolitical considerations. However, given Russia's diminished circumstances, this group's ability to influence Russian policy is quite limited.

The professional national security bureaucracy has a further interest in the Gulf prompted by the increasing challenge of militant Islam to Russian national security. The war in Chechnya has attracted a good deal of attention in the Islamic world. The Chechen side is reported to have received support from a number of Islamic countries, including Saudi Arabia, in the form of both volunteers and material assistance. Russian authorities have also claimed repeatedly that Osama Bin Laden has provided support and training for Chechen fighters. As a result, curbing international Islamic support for the Chechen cause has become an active concern for Russian policy in the Gulf.

Two other groups deserve to be mentioned among significant Russian players who have a stake in Russian policy in the Gulf--the Jewish community in Russia and the Russophone diaspora in Israel. Contrary to many observers' expectations, Russia has remained home to an active Jewish community. A number of Jewish businessmen achieved a position of considerable prominence and influence in the country's economy and politics. At the same time, the vast Russophone diaspora in Israel has maintained close ties to Russia. The result has been a dynamic RussianIsraeli relationship. Although Jewish-Russian business leaders have not come together in a coherent pro-Israeli lobby, Israel's interest in Russia, paradoxically, has emerged as a potentially important factor in Russian policy in the Gulf and relations with Iran and Iraq. Good relations with Russia are an important domestic political card few Israeli politicians can afford not to play, given the strength of the Russian-Israeli electorate. For Russia, with its diminished status in the international arena, good relations with Israel also represent an important goal, given Israel's role as a regional power in the Middle East.

President Putin and the Current Crisis

The large number of Russian players and interests in the current crisis and the Kremlin's limited ability to control and coordinate among them, leave President Putin in an unusual position of a stand- alone actor, whose own interests and actions need to be considered in isolation from all the others. President Putin's post-9/l 1 political strategy, which placed Russian relations with the United States virtually above all other considerations, has clearly paid off. Not only does President Putin continue to enjoy high personal popularity at home, but Russian public opinion of the United States has improved dramatically from its nadir of 1999, when only 37 percent of Russian citizens had a positive view of the United States, to 61 percent in late-2000.

The Iraq crisis presents President Putin with a number of political opportunities, as well as challenges. On Putin's watch, Russian stance on Iraq has lost its bluster of the Yeltsin era. Whereas during the Yeltsin era, Iraq had become a bargaining chip used by the Kremlin to assert itself vis vis the United States and demonstrate Russian ability to defy Washington, Putin seems to have used Iraq to showcase his pragmatism and diplomatic skill. In the Security Council, Russia has assumed a far more constructive position with regard to Iraq, leaving it to others to challenge the United States directly. Thus, Putin has maintained cooperative relations with Washington, but without appearing to be too compliant.

Putin's pragmatism has its limits. For over a decade now, Russia's special relationship with Iraq has enhanced the Kremlin's ability to protect itself from Communist-nationalist charges of sell out of Russian interests and surrender to the United States. Thus, domestically, he needs to balance his special relationship with the United States against charges of being Washington's lackey.

Furthermore, Putin's freedom of political action internationally is constrained by the need to maintain good relations with France and Germany. He needs to balance his special relations with the United States against those two-- also very important to Russia. Putin's skillful maneuvering to date and even media reports describing the Russian leader as the broker healing the transAtlantic rift, have boosted his image abroad and at home.

The Russian President appears to be keenly aware of Russia's weakness and would like at all costs to avoid having to choose sides between Europe and the United States over Iraq. It is truly an impossible choice for the Russian leader. Were he to side with the French and the Germans, he could demonstrate to Washington that Russia is not to be taken for granted, that it still matters as a Security Council member and that Washington better pay attention to it.

But if Putin sides with the French and the Germans and undercuts the United States in the process, he runs the risk of undermining the Security Council, pushing the United States toward unilateral action on Iraq and the Security Council toward obsolescence. Such a turn of events would be a blow to Russian interests. A permanent seat in the Security Council lends credibility to Moscow's superpower aspirations. Anything that undercuts the Security Council's power and authority would also undercut the prestige Russia derives from its membership in the Council. All of these competing pressures and demands on the Russian president are will probably translate into a conservative posture at the United Nations, where Russia is likely to continue to cede the initiative to others.

Putin's stance on Iran is likely to follow the established pattern of Russian-iranian relations, ln addition to the powerful lure of profits from arms trade with Iran, the relationship with Tehran has become something of a symbol of Russian independence in its foreign policy, or Russian ability to stand up to U.S. pressures. President Putin is unlikely to alter this pattern. Arms trade and nuclear cooperation with Iran serve the interests of powerful and entrenched lobbies and help protect Putin from charges of caving in to U.S. pressures across the board.

From Lemons to Lemonade

The fractious nature of Russian foreign policy-making and the lack of effective restraints on entrenched lobbies and actors do not bode well for the future or Russian policy in the Middle East and specifically the Persian Gulf. Given the power of domestic interests with stakes in ongoing relationships with some of the most troublesome states in the Persian Gulf and the Kremlin's limited ability to intervene (assuming the will to do so in the first place, of course), Russia appears bound to be a part of the problem for the United States in the Gulf. However, appearances can be deceptive.

One of the most important developments in Russian domestic and foreign affairs--since the rise of the clans--has been the evolution of some of these clans in recent years. Herein lies the prospect of change for the good in Russia and an opportunity for the United States to explore.

The process of consolidation of power and property by new owners has given them a powerful incentive in legitimizing their holdings. This change has been slow in coming, but signs of it have emerged in some segments of the Russian economy, in particular the oil sector, where privatization has been widespread. Furthermore, a combination of vast oil revenues and residual threats of re-nationalization, emanating from various political quarters in Russia, have given new owners an incentive to protect their assets. While all have sought protection in proximity to the Kremlin, the best and the brightest must have realized that true security and independence as business tycoons cannot be achieved solely by lobbying from the Kremlin, where people come and go and favorites rise and fall. The example of those oligarchs who fell out of favor with Putin and ended up in external exile must have been a shock to the group of businessmen who fancied themselves as kingmakers.

The best and the brightest among Russian businessmen have begun to address this problem by seeking acceptance and legitimacy abroad, as businessmen, political interlocutors and sponsors of charities. They have reached out to Wall Street and Washington and have made a deliberate effort to scrub their image as rogue privatizers of the bad old days. They have streamlined their companies, made them more transparent and sought to make them more attractive to foreign investors. The logic and self-interest of this move is quite transparent. As leaders of major international companies they will be far less vulnerable to the Kremlin's whim than businessmen whose base is entirely in Russia.

Ironically, the prospect of war in Iraq must be seen as an opportunity by some of Russia's business leaders. They have been relentless in telegraphing to Washington with unprecedented clarity the price of Russian acquiescence to regime change in Iraq--a seat at the table when the time comes to divvy up the spoils of war, or in other words, assurances that they will get a piece of Iraqi oil after the war. With that they want acceptance and a chance to establish a dialogue with the political establishment in Washington. In exchange they offer their-- considerable-influence at home, which they are prepared to deploy in order to help bridge the gap between the United States and Russia.

From a U.S. perspective, this is an opportunity that's well worth exploring. It is to be precise, an opportunity to establish a regular, albeit informal dialogue with the select group of people of unprecedented power and influence in Russian domestic affairs. Although the immediate reason for it is the crisis in the Gulf, the dialogue with Russia's most advanced businessmen need not be limited to that. Despite the warm tone in top-level diplomacy between the United States and Russia, there are still many problems that need to be resolved on the bilateral agenda-- from proliferation to domestic change in Russia. The power and influence of some of these people may not come with guarantees, but in some instances it may help tip the scales in the right direction. In retrospect, looking at the 1990's a decade of diploma/ic engagement with a weak Russian president presiding over a powerless government left both Russia and the United States disappointed with each other. It appears at this juncture the idea of engaging some of Russia's real power centers in a dialogue about our shared interests and our differences is both common sense and low risk.


1 The views expressed in this testimony are those of the author and do not reflect the official policy or position of the National Defense University, the Department of Defense or the U.S. Government.