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S T R AT E G I C F O R E C A S T I N G , I N C .STRATFOR is the world’s leading private intelligence firm providing corporations, governments and individuals with intelligence and analysis to anticipate the political, economic, and security issues vital to their interests. Armed with powerful intelligence-gathering capabilities and working in close collaboration with STRATFOR’s experienced team of professionals, our clients are better able to protect their assets, diminish risk, and increase opportunities to compete in the global market.

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ii© 2005 Strategic Forecasting, Inc.

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A b o u t S t r at f o r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i i i

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E x e c u t i v e S u m m a r y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 M a y : T h e M o n t h i n R e v i e w . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 K e y I s s u e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 T h e M o n t h A h e a d : F o r e c a s t s f o r J u n e . . . . . . . . . . . . . . . . . . . . . 1 0 T r e n d s , S t a t s a n d I n d i c a t o r s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 6 N o t e w o r t h y E v e n t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 8

S t r at f o r S e r v i c e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 7

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s the United States continued its geopolitical offensive into the former Soviet Union (FSU), the region moved into the spotlight in May when Russia hosted ceremonies commemorating the 60th anniversary of V-E Day. The anniversary celebration held much geopolitical significance: Russian President Vladimir Putin and U.S. President

George W. Bush met but failed to make improvements in their countries’ relations; Putin reached out to potential allies; and countries from around the world used the celebration as an opportunity to pick at Russia and open old wounds. Meanwhile, Ukraine faced an energy crisis, armed violence erupted in Central Asia, and leaders throughout the region began to see an acceleration of the U.S. geopolitical push into the FSU — a development that could prompt Putin to start pushing back.

T h i s M o n t h ’ s H i g h l i g h t s : I n E v e r y I s s u e : • Diplomacy and Disrespect on V-E Day • Trends, Stats and Indicators • Energy and Disunity in Ukraine • Noteworthy Events • Unrest in Central Asia • Power Struggles Throughout the FSU • The West Strengthens in the Caucasus • The Month Ahead: Outside Players, Internal Strife and New Alliances

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elebrations surrounding the 60th anniversary of V-E Day dominated the former Soviet Union (FSU) in May. The V-E Day ceremonies in Moscow, attended by major world leaders, became a venue for other countries to hurl accusations at Russia. This further alienated Russia — which is in critical condition geopolitically, but not dead — and

created the potential for a Russian backlash against its real and perceived enemies. Russian President Vladimir Putin and U.S. President George W. Bush met on the sidelines of the V-E Day celebrations, but the leaders failed to make improvements in relations. Putin also used the ceremonies as an opportunity to strengthen ties with those nations that could help Russia resist Washington’s geopolitical offensive into the FSU.

Another major event, the Ukrainian energy crisis, revealed a power struggle between the country’s president and prime minister — a conflict likely to hurt Ukraine internally and externally. May also saw an armed uprising in Uzbekistan’s volatile Fergana Valley — shockwaves from which will be felt across Central Asia, especially in Kyrgyzstan and Tajikistan — and two U.S. victories in the Caucasus as the Baku-Tbilisi-Ceyhan pipeline opened and Russia agreed to withdraw its military bases from Georgia (though that move probably will lead to more instability in Georgia).

The region faces three key issues: the continued U.S. geopolitical offensive and Moscow’s response; an intensifying power struggle inside Russia as political movements pulling the country in opposite directions could merge with social protests; and players other than Russia and the United States — most notably, China and Iran — entering the region with major ambitions.

In June, Stratfor forecasts rising tensions between Washington and Moscow as Russia moves indirectly to counter the U.S. push into the region. Rather than confront Washington outright, Russia will help other countries challenge U.S. policies. The Kremlin probably will turn east and south in its search for strategic allies, with its focus on developing partnerships with China and India by delivering energy to these Asian giants. June also will see continuing power struggles inside Russia, more Russian success against Chechen insurgents, further unrest in Central Asia, more insecurity in the Caucasus and several FSU regimes choosing between following the Bush administration’s line and standing their ground.

CE x e c u t i v e S u m m a r y


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M A Y : T H E M O N T H I N R E V I E W

V- E D a y : P u t i n H o s t s W o r l d L e a d e r sThe 60th anniversary of V-E Day was a prominent event for the former Soviet Union (FSU); after all, during World War II, every country in the region was part of the Soviet Union — which suffered the greatest casualties and which turned the tide against Nazi Germany — and leaders from around the world attended the V-E Day ceremonies in Moscow.

For Russia itself, the anniversary was bittersweet, as it became clear that 60 years after Russia’s greatest geopolitical triumph — the end of World War II — the country is still recovering from what Russian President Vladimir Putin called the century’s greatest geopolitical catastrophe — the collapse of the Soviet Union. The V-E Day celebrations confirmed that the post-World War II world order has ended and a new order, in which the outcome of World War II bears little importance, has begun.

Events surrounding the V-E Day celebrations reminded Russia all too well of the pressure it has faced to give back what the Soviet Union gained after World War II. Latvia refused to sign a border treaty with Russia without attaching a unilateral declaration on its territorial claim to Russia. Georgia, concerned about the withdrawal of Russian military bases from its territory, did not send a delegation to Moscow for the celebrations. Japanese Prime Minister Junichiro Koizumi talked with Putin as if World War II made no difference and insisted that Tokyo will not cooperate with Moscow until Moscow cedes the four southern Kuril Islands to Japan. Nations — particularly small nations — treat a giant neighbor this way if they feel the giant is chronically, perhaps terminally, ill. Russia’s current condition means Putin will continue to face pressure from countries wanting to benefit from Russia’s weakness. The United States is first on this list.

U.S. President George W. Bush and Putin made no breakthrough during their summit on the sidelines of the celebrations; Putin neither confronted Bush nor made any concessions. Bush, perhaps feeling that too much outright pressure would not help the situation, softened his rhetoric toward Russia by telling Washington’s anti-Russian allies in the FSU — eager to please the United States and advance their own interests under U.S. protection — to deal with Russia at the negotiating table to settle disputes. Putin’s actions after the

Russia is still recovering from the collapse of the Soviet Union.


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summit showed that he will stay his course of Westernizing Russia while making independent policy moves to avoid subjugation to Western powers.

Putin used the celebrations to try to forge closer ties with countries that could help Russia fend off the U.S. geopolitical offensive into the FSU: France, Germany, China and India. Essentially, these countries told Putin they do not want a weak ally; rather, if Putin wants them in his corner, he should get tougher with Washington, thereby proving Russia’s strength and earning allies’ respect.

U k r a i n e ’ s E n e r g y C r i s i s R e v e a l s P o w e r S t r u g g l eUkraine was plunged into a major energy crisis, with large-scale oil shortages and skyrocketing gasoline prices. Ukrainian President Viktor Yushchenko and Ukrainian Prime Minister Yulia Timoshenko took opposite views on the crisis.

Timoshenko, known for radicalism in every field she enters, tried accusing Russian oil companies of fomenting the crisis. This contradicted two facts: first, the crisis began when Timoshenko arbitrarily imposed tariffs on oil imports from Russia; and second, some of the companies in question are Western-affiliated, such as TNK-BP, part of the BP energy empire. The West did not support Timoshenko; on the contrary, Europe appeared uneasy about Kiev employing government regulations instead of pursuing open market policies as the new regime promised. Yushchenko had to correct his maverick prime minister by blaming the government she leads for the problem and canceling the tariffs she imposed.

U z b e k U p r i s i n g S e n d s S h i v e r s A c r o s s C e n t r a l A s i aThe May 12-15 armed uprising — which media wrongly called “protests” — in Uzbekistan not only shook up the country but also sent shivers through all of Central Asia and the rest of the FSU. Confusion prevails about who took up arms and why in the city of Andijan, located in the volatile Fergana Valley. Stratfor’s view, based on intelligence received thus far, is that the unrest was a well-organized uprising against President Islam Karimov’s government.

The crisis began when Timoshenko imposed tariffs on Russian oil.


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Participating in the rebellion were moderate Islamists wanting to set up an “Islamic” democracy, radical Islamists trying to establish Islamist authoritarian rule in Uzbekistan, pro-Western business interests and youths attempting a “revolution” mirroring those in other FSU states, and criminal syndicates, especially drug-trafficking groups trying to undermine the regime and secure the free flow of drugs from Afghanistan through Uzbekistan and into Russia and Europe. The uprising apparently was led by the Fergana power clan, a group that the Karimov-led Samarkand clan and its ally the Tashkent clan constantly sidelined and deprived of power and wealth.

Uzbekistan’s unrest surely was influenced and inspired by the “Tulip Revolution” that overthrew the regime in neighboring Kyrgyzstan. The Andijan rebellion set in motion a slew of forces throughout Central Asia. Instability ensued in southern Kyrgyzstan, with ethnic tensions growing between Kyrgyz and Uzbeks and with drug barons and Islamists stepping up militant activities there. Turkmenistan, showing its concern, conducted major military exercises in May for the first time in several years. Kyrgyz and Uzbek leaders looked around to see which major foreign powers might lend them support.

T h e C a u c a s u s : W e s t e r n S u c c e s s Ve r s u s G r o w i n g I n s t a b i l i t yThe U.S.-led West and its allies scored two significant victories in the Caucasus in May. First and foremost, the Baku-Tbilisi-Ceyhan (BTC) pipeline was inaugurated, with the first crude expected to get through from the Caspian to Turkey in late fall. The BTC — which has higher costs than competing pipelines — has become a geopolitical choice because it bypasses Russia while delivering oil from the Caspian to the West, thus nullifying Russian influence over energy flow to Europe while increasing U.S. influence in the strategically important Caucasus.

The second Western victory in the region is Russia’s de facto agreement (the legally binding agreement is expected this June) to withdraw its bases from Georgia in 2008. Moscow previously insisted its withdrawal would take up to 15 years. Currently, Russia’s bases — operating in a hostile environment,

A diverse collection of forces took part in the Andĳan uprising in Uzbekistan.

The BTC pipeline increases U.S. influence in the Caucasus.


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with Georgians threatening to blockade the bases and Russians not daring to strike out at the U.S.-backed Tbilisi — play no role in Moscow’s force projection in the Transcaucasus or the Middle East. Rather, the few thousand Russian troops in Georgia are like hostages who would become the first casualties should Russo-Georgian relations become highly confrontational.

In spite of these successes, Washington has much to worry about in the Caucasus, starting with Georgia, because of worsening security and political instability there. Bush’s visit to Tbilisi was soured after the discovery of a hand grenade that landed close to where Bush stood during a speech, and which the FBI said was active. This, coupled with Georgian President Mikhail Saakashvili’s quickly fading popularity — caused mainly by the failing economy, which he pays little attention to — likely will lead to cooling relations between Washington and Tbilisi. Saakashvili’s reputation has also been hurt by his hard-line nationalist policies that allow abuse of minorities in the country (in May, some non-Georgians in the country were victims of ethnically motivated murders).

K E Y I S S U E S

T h e U . S . G e o p o l i t i c a l O f f e n s i v e a n d M o s c o w ’ s R e s p o n s eAs the world’s only superpower, the United States has begun advancing its forces, interests and allies deep into the FSU. The Bush administration’s strategic decision to make its geopolitical offensive into the FSU and Russia proper one of its top priorities makes Russia’s position untenable. The way the recent V-E Day celebrations in Moscow were met — and the way Russia was treated in the process — underscores Russia’s perils. Bush sandwiched his trip to Moscow between visits to his two most anti-Russian allies, Latvia and Georgia, where he spoke more about Russia as an occupying force after World War II than about Russia’s contribution to the Allied victory in Europe.

If Moscow does not react decisively — and quickly — Russia could slide into geopolitical, and perhaps historic, oblivion. In May, Russia toughened its response to Washington, yet Moscow continued to lose ground in its near abroad. Felix Kulov, a pro-Russian candidate for the Kyrgyz presidency, decided to withdraw

The United States has begun a geopolitical advance deep into the FSU.


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from the July presidential race — which he stood a good chance of winning — and serve as prime minister to the pro-U.S. Kurmanbek Bakiyev, who will likely win the Kyrgyz election. Furthermore, Russia agreed to almost all of Georgia’s demands on the issue of withdrawing its bases from Georgian soil — an issue in which Russia had the upper hand only several months ago.

Russia has yet to make large moves beyond rhetoric in standing up to Washington. For example, Russian Federal Security Service Director Nikolai Patrushev said May 13 that foreign intelligence services — including U.S., British, Kuwaiti and Saudi services — are planning further uprisings along the lines of Ukraine’s “Orange Revolution,” aimed at undermining Russian influence in the FSU. Yet after Patrushev’s statement, Moscow failed to take any action to stem the tide of these “revolutions.”

R u s s i a : G r o u p s F i g h t O v e r D r i v e r ’ s S e a tMuch of Russia’s response to the U.S.-led Western geopolitical offensive will depend on the outcome of its internal power struggles. Three major camps are vying for power in Russia, with each pursuing a different course inside the country and toward the West.

The first group consists of Russian national security agencies’ members and their affiliates. Contrary to conventional wisdom, this camp no longer defends Russia’s national interests. The members of this group — people from Putin’s inner circle — are mercenaries who consider their economic interests first and the country second; those who think otherwise are sidelined. This group wants to Westernize the country while remaining in power. This means that following Washington on major policies would not suit them; they believe if that happens, Washington could easily replace them with leaders who are openly and genuinely pro-Western, almost to the point of servility. Some Russian oligarchs belong to this first camp.

The failure of the Gazprom-Rosneft merger in May shows this group’s strength in Moscow. Rosneft CEO Sergei Bogdanchikov did not care to cede power to Gazprom CEO Alexei Miller, even though both men hail from St. Petersburg. Bogdanchikov and deputy head of the presidential administration Igor Selchin derailed the merger in an effort to consolidate Rosneft’s economic power, thus depriving Russia of the rare opportunity to

Russia must move beyond rhetoric to counter the U.S. push into the region.


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create the world’s largest energy company — a force capable of promoting Russian interests in the near and far abroad. Rosneft’s independence is good news for Putin — neither he, nor any Russian ruler, would have been able to control an energy giant the likes of which would have come from the Gazprom-Rosneft merger. When the merger fell through, Miller was kept from a position that could threaten Putin’s power.

The second group competing for influence in Russia comprises openly pro-Western liberals and oligarchs inside and outside the government. Members of this group keep strong positions in economic agencies — hence the steady ultra-liberal course of Russian reforms under Putin lately. The group has yet to choose a leader who would be a viable alternative to Putin. The meeting of the Union of Rightist Forces — Russia’s largest pro-U.S. political party — in May indicated that Anatoly Chubais, head of Russia’s United Energy Systems and one of the most powerful oligarchs, is gaining ground in the struggle for leadership of this camp; his crony Nikita Belykh has been chosen to lead the party.

Too impatient to wait until the 2008 presidential elections, and encouraged by the successful “revolutions” in the FSU and by U.S. support, this camp is preparing a pro-Western “revolution” in Russia itself. The first strike against the Kremlin probably will come in ethnic minority areas such as Bashkortostan, a Muslim-dominated area in the Middle Volga region that saw “revolution”-type protests in April and May.

The third group consists of national interests-minded Russian professionals who, despite Putin’s purges, still hold many low- and mid-rank positions in the government, especially in the military and intelligence. Though sidelined at the moment, they know their ideas of a Russian revival are very popular among the masses.

Protests against austerity and the current government’s monetarist policies — including cutting social benefits — continued across Russia through May, showing that the Russian public is slowly but surely awakening to become a force in determining Russia’s fate.

Rosne�’s independence is good news for Putin.


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O t h e r P l a y e r s A c c e l e r a t e E n t r y I n t o T h e F S UThe U.S.-Russian geopolitical struggle is no longer the only major external influence affecting the region. Seeing Russia’s weakness — and feeling concern about the deep U.S. penetration into the region — other major powers are entering the scene.

Europe usually sides with Washington when it comes to supporting pro-Western and often anti-Russian “revolutions” in the FSU, but May saw the first signs that Europe — perhaps because it has realized that ruining Russia would not serve its interests — would work to moderate the U.S. geopolitical offensive. Europeans have criticized Georgia’s pro-U.S. Saakashvili lately and told pro-U.S. Ukrainian leaders that they should maintain working relations with Russia because entering the European Union is not in Kiev’s foreseeable future. The most active outsiders in the FSU, however, are China and Iran.

China is very concerned with what it perceives as the long-term U.S. strategy to surround China with bases, forces and satellite states. Indeed, the movement of U.S. military forces and facilities into Central Asia at the beginning of the Afghan war in 2001 has put Americans right on China’s western border, where Beijing never expected them to be. The generally pro-U.S. “revolution” in Kyrgyzstan in April and Uzbekistan’s uprising in May multiplied those worries.

Beijing’s response has been — and probably will continue to be — forging closer security ties with FSU nations to create some buffer against U.S. troops or counter the U.S. presence. In particular, Beijing is talking with neighboring Kyrgyzstan about basing Chinese troops in the country, given the instability there and Bishkek’s likely inability to provide for security. Beijing also signed an agreement with Belarus, the strongest opponent of U.S. penetration into the FSU, to strengthen military cooperation. Uzbekistan’s Karimov — facing the West’s criticism and internal opposition and feeling that Russia is too weak or timid to rely on — signed a strategic partnership agreement in Beijing that envisions multiple lines of collaboration, including security, with China seeing Uzbekistan as a reliable barrier against the West.

Iran is another player to watch, as it has recently strengthened its influence in the Caucasus. Fearing that U.S. forces — which will move into Azerbaijan

The most active outsiders in the FSU are China and Iran.


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in accordance with an agreement Washington and Baku reached in principle — will use Azerbaijan’s territory to attack Iran, Tehran signed a nonaggression pact with its northern neighbor. The pact means that neither Azerbaijan nor Iran will let a third party use its territory to attack the other. Earlier, Iran reached out to Georgia, a major U.S. ally, and signed a number of economic accords with Tbilisi in an effort to counter Washington’s influence there and thus somehow limit U.S. ability to use Georgian territory and assets should the Bush administration decide to attack Iran.

T h e M o n t h A h e a d : F o r e c a s t s f o r J u n e

H i g h l i g h t s : • Tension Between Moscow and Washington • Instability and Power Struggles • Continued Russian Victories in Chechnya • Russia’s Geopolitical Counteroffensive • Asian Giants Joining Forces

U . S . - R u s s i a n Te n s i o n s a n d R u s s i a ’ s P o w e r S t r u g g l eTwo major trends — unrelenting U.S. pressure on Russia and Moscow’s toughening stance against Washington’s geopolitical offensive — will result in growing tensions in June. The May 31 sentence handed down to Mikhail Khodorkovsky, the Yukos CEO and major shareholder who challenged Putin’s power, will set the scene for Washington and Moscow to deepen their rivalry.

The sentence — nine years in prison for Khodorkovsky, and the same term for Khodorkovsky’s associate, billionaire Platon Lebedev — is Putin’s first firm response to Washington’s attack. The Bush administration, rightly seeing Khodorkovsky as a pro-U.S. alternative to Putin, will encourage anti-Putin propaganda regarding this issue and try to make Putin force the judges

Iran has moved to counter U.S. influence in the Caucasus.

Khodorkovsky’s prison sentence is Putin’s first firm response to Washington.


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to soften the sentences. Whether Putin gives in will be a litmus test for his resolve to stand up to Bush not only in rhetoric but also in policy. We expect Putin to hold firm in June. U.S. and Russian officials have no scheduled meetings in June to discuss improving their countries’ relations.

Putin’s mid-May order to the Russian government to draft legislation limiting foreign investment into Russia’s strategic sectors — including defense, infrastructure, mining, railways, oil and natural gas — looks like a response to the West. However, the order has more to do with Putin’s desire to please various groups within Russia. Private sector oligarchs support limiting foreign investment because those limits enable them to control the domestic market. The nationalist siloviki, who constitute part of Putin’s support base and resent his recent concessions to Western interests, also support such measures, as do the Russian people. The only people affected by the proposed legislation are those who hoped Russia would break wide open for foreign control — something that was never a substantial possibility. Portfolio investment from abroad will still be an option in Russia, as illustrated by Gazprom’s plan to sell shares after the government acquires a controlling stake in the company.

The U.S.-Russian struggle over Khodorkovsky will facilitate internal political struggle in Russia. Pro-U.S. circles will step up their protests against Putin and try to unify to achieve eventual success, while some leftist and patriotic opposition groups will join the ranks of protesters, seeing common action as the only way to defeat Putin, whom some see as a dictator. These political protests could merge with the impoverished populace’s social protests — large demonstrations are expected, and violence is not out of the question. Putin should prepare for a hard time ahead, but he should cruise through June relatively safely; high oil prices will help Putin keep Russia’s economy afloat.

R u s s i a O p t s f o r I n d i r e c t R e s p o n s eIf the Putin government’s May actions are any indicator, the Kremlin will prefer to counter the U.S. geopolitical offensive indirectly, by making it more difficult for Washington to confront its other rivals and foes. Particularly, Moscow will continue and could even step up its arms sales to U.S. rivals.

Venezuela, for instance, is looking to purchase SU-27 Flanker fighters from Russia instead of the less-capable MiG-29SMT Fulcrums it previously considered. Putin knows selling SU-27s to Venezuela would create serious


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problems for the U.S. Navy and its aircraft should a conflict arise between Venezuela and the United States — a development that is not impossible. Sources in the Russian defense sector say several high-ranking delegations representing the top Russian military industrial complex will solicit buyers for Russian military hardware, including its latest arms systems, throughout the summer and early fall.

R u s s i a T u r n s E a s t , S o u t h i n S e a r c h o f A l l i e sAs its European partners face internal problems (French President Jacques Chirac’s failure to get the EU constitution endorsed in France and the threat of early elections for German Chancellor Gerhard Schroeder), Moscow will focus on forging close ties with China and India. In the past, such ties were based on security and defense cooperation, but Russia, China and India are trying to fill their alliances with real “meat” to make sure they are functional and meaningful. In June, they likely will discuss energy cooperation, given how energy-hungry the Chinese and Indian economies are.

The Russian, Chinese and Indian foreign ministers were meeting in Vladivostok, Russia, June 1-2 to specify economic cooperation issues and further business contacts; in particular, they planned to discuss the expansion of oil and gas exports from Russia to its two giant Asian partners. Later in June, Putin and Chinese President Hu Jintao will meet in a major push to build their countries’ partnership across the board. Energy will be very high on the agenda; Putin is expected to confirm that Yuganskneftegaz, a former production arm of Yukos that is now part of state-owned Rosneft, will help Rosneft not only fulfill but also increase oil deliveries to China. Future major gas deliveries to China will be discussed and probably agreed upon.

R u s s i a W i n s C a m p a i g n i n C h e c h n y a B u t N o t W a r — Y e tChechnya has long been a thorn in Russia’s side, with Moscow quietly suspecting that its foes — from Washington to Saudi Arabia to Middle Eastern Islamist militants — have used the Chechen conflict to their advantage, as it has over-bled Russia and its army and contributed to Russia’s long-term weakness. Finally realizing that further procrastination

Putin knows selling fighter planes to Venezuela could create problems for Washington.

Energy will be a high priority for Russia’s relations with China and India.


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could lead to Russia’s disintegration and perhaps death, Putin ordered a decisive offensive that resulted in the death of rebel Chechen President Aslan Maskhadov and other prominent leaders. This, in turn, led to less effective militant operations against Russia in the North Caucasus. Russians also succeeded in preventing major attacks in Moscow and across Russia.

Russian forces are expected to deal heavy blows to the militants in the North Caucasus in June, killing top commanders and launching strikes against underground cells before they can launch attacks. The Russian Command plans several tightly focused operations specifically targeting top Islamist militant commanders not only in Chechnya but also in neighboring Dagestan and Ingushetia in June.

Though the Chechen war is far from over, these Russian successes could diminish the militants’ capabilities to the extent that the militants will no longer pose a deadly threat to the Russian state. Yet, desperate to reverse the tide, the militants surely are preparing new attacks meant to inflict high casualties — and there is no guarantee the Russians will pre-empt all such attacks in June.

T h e “ R e v o l u t i o n s ” T h r e a t P o l a r i z e s t h e R e g i o nFacing the imminent threat of being overthrown by West-supported “revolutions,” FSU regimes will try to counter that threat. There are two ways to do this: Either get tougher on the opposition, thus inviting the West’s anger, or change policies to completely suit the West and especially the Bush administration, which now has such “revolutions” as its main geopolitical weapon to advance its interests in the region.

In May, some FSU regimes showed signs of bending under pressure and moderating their policies to stave off U.S.-supported regime changes. On May 24, Kazakh President Nursultan Nazarbayev signed agreements in Baku to link Kazakhstan with the Washington-supported BTC pipeline. Nazarbayev also has ordered significantly increased social spending in June to minimize his largely impoverished population’s support for pro-Western opposition. Left in the cold after the BTC launch, Armenia is trying to maneuver between the United States and Russia, with Russian Defense Minister Sergei Ivanov visiting Armenia in June. Yerevan probably will gradually become pro-U.S. unless Russia’s position in the region dramatically strengthens — something not likely to happen this month.

Governments in the FSU will choose whether to follow U.S. policy or face the threat of ‘revolutions.’


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Other regimes — including Turkmenistan, Belarus and Uzbekistan — will choose to fight off the U.S.-led offensive. Effectively, they have no choice; their leaders know Washington is not likely to agree to their continued stay in power, because their policies already have angered the Bush administration. Belarus remains Russia’s staunchest ally and will take new steps to synchronize its defense with Russia’s in June. Turkmenistan’s Saparmurat Niyazov rules his country with an iron fist, does not want foreigners to have a major say in how to use his mineral riches, and courts China. Uzbekistan’s Karimov withdrew from a pro-U.S. FSU organization, GUUAM, on May 5.

The trouble ahead for those FSU regimes opposing Washington does not mean that those readily following the U.S. line will enjoy peace and quiet this June. On the contrary, internal instability will worsen, as will political struggles and economic and social woes. Azerbaijan will probably see more demonstrations and violence.

Georgia likely will see more suspicious deaths and more fighting. If the pro-Western Georgian elites can put forth a viable alternative, Saakashvili could be removed down the road. However, Saakashvili will try his best to stay in power despite the odds — possibly by heating up low-intensity

Pro-U.S. regimes will not avoid conflict in June.


J U N E 2 0 0 5

conflicts with breakaway regions Abkhazia and South Ossetia, thereby distracting Georgians from the failing economy and attracting Washington’s sympathies as he goes up against the Russian-allied regions.

Ukraine’s May energy crisis — and its resolution — is merely the tip of an iceberg. The country’s looming economic troubles and power struggles, if left unchecked, could have a dramatic impact on the country’s economy, political stability and international image. The behind-the-scenes struggle between Yushchenko and Timoshenko will continue, accompanied by an open struggle between the new regime and eastern Ukraine’s opposition. The kinds of suspicious deaths seen previously in Georgia could begin occurring in Ukraine, and law enforcement agencies could persecute opposition leaders.

U z b e k i s t a n a n d C e n t r a l A s i a : M o r e F i g h t i n g I n J u n eCentral Asia is indeed the region to watch in June and beyond, with a variety of parties — international and local Islamists, local strongman regimes, Russia, the United States, China, Iran, Turkey, Pakistan and India — working to make the energy-rich region “theirs.” The May uprising in Andijan is not an isolated event; more attacks by rebel forces (with Islamist militants among them) are expected, probably in June, though full-scale war will not break out. Guerrilla attacks against government troops, pro-guerrilla demonstrations, government reprisals against demonstrators and guerrillas, and the West’s condemnation of government actions will be the likely causes of violence. Stratfor also agrees with the U.S. State Department’s warning about possible jihadist attacks in Central Asia. More unrest is very likely in Uzbekistan, rather likely in Kyrgyzstan and possible in Tajikistan. Clashes between Uzbeks and Kyrgyz are likely in Kyrgyzstan’s Osh region.

The United States, European Union and NATO will issue new official protests regarding Uzbekistan’s crackdown on its opponents. To counter the West’s pressure, Chinese delegations will visit Uzbekistan at Karimov’s invitation this summer; one such visit is expected in June.


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T r e n d s , S tat s a n d I n d i c at o r s

Armenia

Azerbaijan

Belarus

Georgia

Kazakhstan

Kyrgyzstan

Moldova

Russia

Tajikistan

Turkmenistan

Ukraine

Uzbekistan

n/a = not available

All data are provided by the governments of respective countries, unless otherwise noted.

1 IMF, 2004 2 World Bank's World Development Indicators Online, 2002 3 International Labour Organization, 2002 4 International Labour Organization, 2004 5 World Bank's Data at-a-glance sheet, 2003

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

sIn

com

ing

FDI

contr

acted

billio

ns US

D

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us

2.80

7.14

17.5

3.99

29.7

1.91 1

1.96

433

1.55

6.20

49.5

9.95

3,055,630

8,233,000

9,880,963

5,126,000

14,900,000

5,052,000

4,237,600

143,000,000

6,304,700

4,863,500

48,400,000

25,600,000

916.34

867.24

1771.08

778.38

1993.29

378.07

462.53

3027.97

245.85

1274.80

1022.73

388.67

13.91

11.20

6.78

11.09

9.20

6.67

6.29

7.35

10.20

16.90

9.40

4.40

155.00

3285.0

171.00

338.00

2068.0

25.000

58.000

1144.0

32.000

100.00

1424.0

70.000

9.6

1.1

2.0 1

12.02

7.9 1

n/a

7.3 3

7.2 4

n/a

n/a

6.1 4

n/a

0.5520

1.9730

7.8020

0.8470

15.147

0.5820 1

0.7900

133.16 1

0.7910

3.4420

21.516

1.9140

1.1440

2.5820

12.016

1.3240

9.3550

0.7120 1

1.4030

63.031 1

0.8810

2.5040

23.476

2.4520

-0.9392 Feb.

0.0062 4

1.0000 Feb.

0.0016 4

0.5675 Mar.

0.0000 Feb.

1.0995 Jan.

1.2580 Feb.

16.300 5

5.6000 5

2.4000 Dec. ‘04

30.400 5

589.23

1002.7

959.38

380.82

8478.2

527.17

461.25

133,651

176.23

2673.0 5

11736

1743.0 5


J U N E 2 0 0 5

Armenia

Azerbaijan

Belarus

Georgia

Kazakhstan

Kyrgyzstan

Moldova

Russia

Tajikistan

Turkmenistan

Ukraine

Uzbekistan

*Closing Rates

Beginning

561.00

4908.0

2149.0

2.0400

131.57

43.750

12.601

27.783

2.7804

5200.2

5.0150

969.36

Low

561.00

4908.0

2149.0

2.0400

130.49

43.750

12.591

27.782

2.7804

5200.2

5.0125

969.36

High

561.00

4908.0

2149.1

2.0400

132.60

43.750

12.602

28.239

2.7804

5200.4

5.0700

969.36

End

561.00

4908.0

2149.1

2.04.00

132.60

43.750

12.602

28.239

2.7804

5200.3

5.0500

969.36

Regional Currency Rates

T r e n d s , S tat s a n d I n d i c at o r s


J U N E 2 0 0 5

N o t e w o r t h y E v e n t s

May 2: Turkmenistan agrees to sell 7 billion cubic meters (bcm) of natural gas in 2005 and 10 bcm in 2006, ending a 17-week standoff with Russia and energy giant Gazprom.

May 5: Russia plans to cut one or two strategic rocket divisions each year for the next five years to comply with the Russian-U.S. Strategic Offensive Reductions Treaty. Russia has about 6,000 warheads now.

May 6: In Russia, the Strategic Rocket and Space Forces says it plans to build a new cosmodrome in the southern Ural Mountains region. The base also could be used for commercial space activities.

May 7: U.S. President George W. Bush meets in Latvia with President Vaira Vike-Freiberga, Lithuanian President Valdas Adamkus and Estonian President Arnold Ruutel.

May 8-9: Commonwealth of Independent States members sign a declaration of humanitarian cooperation at a summit in Russia. Georgia does not attend.

May 8-10: Russia hosts ceremonies commemorating the 60th anniversary of V-E Day. Major world leaders attend the commemoration, held in Moscow.

May 8: U.S. President George W. Bush and Russian President Vladimir Putin meet to discuss the Middle East and terrorism. Talks reportedly are amicable, despite Bush’s earlier remarks calling Russian domination of Eastern Europe a historical wrong and the Baltic countries an example of democracy for Russia.

May 9: In Russia, approximately 1,000 members of the Communist Party, the Rodina Party and radical youth groups clash with police during the V-E Day commemoration ceremony in Moscow. Some 200 demonstrators are arrested.

May 9: Indian Prime Minister Manmohan Singh and Russian President Vladimir Putin meet to discuss cooperation in the areas of defense, energy security and information technology.

May 9: Chinese President Hu Jintao meets with Russian President Vladimir Putin.


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May 9: U.S. President George W. Bush meets with Russian President Vladimir Putin to discuss the development of democracy in Russia.

May 9: Representatives of the Middle East Quartet — Russia, the United States, the United Nations and the European Union — meet in Moscow to discuss conditions for Israel’s withdrawal from Gaza and the West Bank and ways to improve the socio-economic situation in the Palestinian territories.

May 10: U.S. President George W. Bush says he supports Georgia’s peaceful efforts to regain control of separatist South Ossetia and Abkhazia, but he declines to press Russia to remove its military bases from Georgia.

May 10: At least 1,000 men and women gather in the Fergana Valley city of Andijan, Uzbekistan, at a protest reportedly organized by the families of 23 young men convicted of engaging in Islamist extremism.

May 10: Georgian President Mikhail Saakashvili proposes the formation of an Eastern European association — to include Georgia, Ukraine and Romania — that would seek the peaceful overthrow of the government in Belarus.

May 10: Russia and the European Union agree to strategic cooperation in four key areas: the economy; freedom, security and justice; external security; and research, education and culture.

May 10: A grenade lands, but does not explode, near U.S. President George W. Bush as he gives a speech in Tbilisi, Georgia.

May 11: Turkmenistan’s President Saparmurat Niyazov says he plans to outfit Turkmen military forces with sophisticated weaponry with financial help from Georgia and Ukraine.

May 12: Russia downgrades Japan to a second-tier diplomatic priority in Asia, following stalemated negotiations over disputed islands and a decline in Japanese investment in Russia.

May 12: Russia says it will send nuclear fuel to Iran by the end of 2005 under the supervision of the International Atomic Energy Agency, calling Iran’s nuclear ambitions “legitimate.”


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May 13: In Kyrgyzstan, pro-Russian leader Felix Kulov rejects the Dignity Party’s nomination as its presidential candidate after making a deal with his political rival, acting President Kurmanbek Bakiyev, to allow him to become prime minister if Bakiyev wins the election.

May 13: Russian prosecutors plan to add money-laundering to the charges of tax evasion and fraud already filed against former Yukos CEO Mikhail Khodorkovsky.

May 13: Security forces fire at protesters, including women and children, gathered outside the regional administration building in the main square of Andijan, Uzbekistan, after negotiations with protest leaders disintegrate. Nine people are killed and 34 wounded in the clashes.

May 15: Belarus sends a delegation of 70 officials from Parliament and the presidential administration to Abkhazia, a breakaway region of Georgia.

May 16: Russian forces kill four rebels in Chechnya — including a man believed to be the republic’s former vice president, Vakha Arsanov — outside Grozny. In Cherkessk, a city in the southern Caucasus region, Russian forces kill six suspected militants serving under Chechen warlord Shamil Basayev and Achimez Gochiyayev, another alleged rebel.

May 16: The U.S. Senate Subcommittee on Investigations reports that Saddam Hussein gave Russian President Vladimir Putin’s Presidential Council more than 90 million barrels of oil in return for supporting Iraq before the U.N. Security Council prior to the 2003 war. Putin is not accused of profiting from the deal.

May 16: In Azerbaijan, Foreign Minister Elmar Mamedyarov claims Armenia is prepared to return seven occupied areas surrounding the breakaway region of Nagorno-Karabakh that collectively amount to 14 percent of Azerbaijani territory. The Armenian government claims ignorance of such a deal. May 17: Trial commences in Russia’s North Ossetia province for Nurpashi Kulayev, the only surviving suspect from the Beslan school hostage crisis in September 2004.


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May 17: A delegation from the Mercosur trading bloc holds talks with leading officials from Russia, including Prime Minister Mikhail Fradkov, in Moscow, marking their first-ever meeting.

May 17: Security services kill Alash Daudov, a prominent Chechen rebel who was believed to be planning poisonings in the North Caucasus and other large population centers in Russia. Daudov was tied to the 2002 seizure of a Moscow theater, attacks against police in Grozny and Nazran in 2004 and the Beslan school hostage crisis in September 2004.

May 17: Kyrgyzstan announces that various transnational militant groups seeking to create a global Islamic caliphate are being activated in Central Asia. The Kyrgyz border service reports that militants from Afghanistan have been gathering near the Kyrgyz borders, more foreign nationals have been entering Kyrgyzstan and militants have been entering the country using forged documents.

May 17: An opposition party in Uzbekistan claims government forces killed 745 people — 542 in Andijan and 203 in Pakhtabad — during recent political violence.

May 18: The U.N. high commissioner for human rights calls for an independent inquiry into reports of mass killings in eastern Uzbekistan.

May 18: Former Yukos CEO Mikhail Khodorkovsky is convicted on one count of fraud in Russia, but must wait on a verdict on 10 other counts.

May 20: In Makhachkala, the capital of Russia’s Dagestan Republic, government official Zagir Arukhov is killed by a bomb at his apartment building. Arukhov was minister of national policy, information and external relations.

May 24: Russian President Vladimir Putin and Indian President Abdul Kalam meet in Moscow to discuss key international issues, bilateral contracts and military-technical cooperation, among other topics.

May 24: The brother of former Georgian Prime Minister Zurab Zhvania claims the FBI has evidence Zhvania did not die in the apartment where his body was found in February, and that Tbilisi was behind Zhvania’s death. Georgian President Mikhail Saakashvili denies the accusations.


J U N E 2 0 0 5

May 25: Russian Industry and Energy Minister Viktor Khristenko says criminal or terrorist activity was not responsible for an explosion at a Moscow electricity substation. The ensuing blackout has affected up to 2 million people, stalled public transportation, shut down the stock exchange and threatened cell phone service.

May 25: The presidents of Azerbaijan, Turkey, Georgia and Kazakhstan, along with numerous other regional and industry leaders, inaugurate the Baku-Tbilisi-Ceyhan pipeline in Baku.

May 25: In Russia, the prosecutor-general’s office plans to summon Unified Energy System (UES) CEO Anatoly Chubais for questioning in connection with massive power outages in Moscow. Chubais faces criminal charges of negligence and abuse of power, and officials seek to investigate other UES executives deemed responsible for the “stable supply of electricity.”

May 26: An international conference on the future of the U.N. Special Program for Economies of Central Asia (SPECA) begins in Astana, Kazakhstan. The agenda includes proposals for forming a Central Asian free trade area and inviting Afghanistan into SPECA, which comprises Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.

May 26: In Russia, Yuganskneftegaz Deputy Director Sergei Burov is shot while exiting a company car. Burov also was head of the Nefteyugansk branch of the United Russia Party.

May 27: The Duma rejects a Rodina party proposal for discussions about dismissing Anatoly Chubais, head of the Unified Energy System monopoly, in relation to Moscow’s May 25 blackout. The Duma is still expected to request the formation of a working group to further investigate the blackout in Russia.

May 27: Neftegaz Ukrainy Co. and the State Oil Co. of Azerbaijan agree to draft documents for a joint stock company that would purchase and transport oil to Europe. The papers likely will be signed during Ukrainian President Viktor Yushchenko’s scheduled visit to Azerbaijan in July.

May 27: The Kyrgyz Interior Ministry says people believed to have organized protests in Andijan, Uzbekistan, have been arrested on Kyrgyz


J U N E 2 0 0 5

soil. Some 20 suspects were arrested out of a group of more than 500 Uzbek refugees who fled the disturbances earlier in May in Uzbekistan.

May 27: A Chechen warlord claims responsibility for the May 25 power outage in Moscow, Russia.

May 29: Russia agrees to cancel 73 percent of the debts owed by Syria — a total of $13.4 billion — so long as Damascus repays an outstanding $3.6 billion.

May 30: In Caracas, senior government officials and businessmen from Russia and Venezuela explore opportunities for economic cooperation and joint investment, including a possible aluminum processing plant to be set up in the Latin American state.

May 30: Algeria sends the chief of its army general staff to Russia to discuss prospects of purchasing Russian weapons.

May 31: In Russia, the Sakhalin Energy consortium signs a long-term contract to sell 70 percent of its liquefied natural gas (LNG) to Japanese firm Hiroshima Gas Co. Ltd.

May 31: Venezuela and Russia agree to establish “strategic alliances” in diverse economic and commercial areas.

May 31: Reports surface in China that Beijing is thinking of deploying a military base in Kyrgyzstan to help fight terrorism, separatism and extremism. The Kyrgyz foreign minister says nothing of the sort has been discussed, and that Kyrgyzstan will not become a basing hub for foreign military forces.

May 31: In China, Defense Minister Cao Gangchuan says Beijing will expand bilateral military ties with Belarus.

J u n e a n d B e y o n d

June TBD: Russian Defense Minister Sergei Ivanov will travel to Armenia.

June TBD: Russian President Vladimir Putin will meet with Japanese Prime Minister Junichiro Koizumi to discuss the status of the Kuril Islands (or “northern territories”) and energy development.


J U N E 2 0 0 5

June 1: Government ministers in Ukraine are set to receive a large pay raise, with top officials’ salaries climbing to about $1,000 U.S. per month.

June 1-2: The foreign ministers of Russia, India and China will meet in Vladivostok to specify economic cooperation issues and further business contacts. The governments of these countries feel they could pool their natural resources to benefit economically.

June 3: Russian Prime Minister Mikhail Fradkov will meet with counterpart Yulia Timoshenko of Ukraine to sign a document on a ministerial economic committee to serve as part of the Putin-Yushchenko interstate commission.

June 7-8: Ukrainian President Viktor Yushchenko will visit Turkey.

June 13: The Ukraine-EU Cooperation Council will meet in Luxembourg to discuss the Ukraine-EU Action Plan for 2005.

June 15: Deadline for expelled Polish diplomat Marek Bucko to leave Belarus.

June 17: Lithuanian Ambassador to Belarus Jonas Paslauskas, recalled following a decree signed by Lithuanian President Valdas Adamkus, will wrap up his duties in Minsk.

June 19: Parliamentary elections are scheduled in the unrecognized Republic of Nagorno-Karabakh in Azerbaijan.

June 23: Annual meeting of Yukos general shareholders in Russia. Late June: Chinese President Hu Jintao will pay an official visit to Russia.

Late June: Officials from Georgia and Abkhazia will discuss the dispersal of police along their borders.

C h a n g e s

UkraineFacing a fuel crisis, Ukraine’s Parliament passed a law canceling import duties on high-octane gas and diesel May 17. Prime Minister Yulia Timoshenko says Russian oil companies cut off supplies to Ukraine — an allegation the oil companies deny. Ukrainian President Viktor Yushchenko


J U N E 2 0 0 5

approved the legislation May 18. The law allows countries other than Russia to profitably import fuel into Ukraine. The import taxes had prompted oil companies including TNK-BP, LUKoil and Tatneft to cut the portion of output exported to Ukraine.

RussiaThe Russian State Duma voted 307-80, with two abstentions, to approve a border agreement between Russia and China on May 20. The treaty supplements the agreement signed in October 2004 and settles disputes in the areas near the Tarabarov and Bolshoi Ussuriisky islands. Russia also signed a treaty with Estonia to formally demarcate the countries’ land and maritime borders May 18. The parliaments of both countries must approve the treaties.

Russian President Vladimir Putin nominated incumbent Vasily Bochkarev as governor of Penza Region on May 11. The local legislative assembly confirmed him May 14. Putin also nominated incumbent Oleg Korolev as head of administration of Lipetsk Region on May 24. On May 28, the local Council of People’s Deputies confirmed his appointment.

KazakhstanOn May 19, Kazakh President Nursultan Nazarbayev met with Belarusian President Aleksandr Lukashenko in Astana and concluded three new bilateral agreements calling for cooperation in information technology and energy and for cultural exchanges. On May 24, Nazarbayev signed agreements in Baku to link Kazakhstan with the Baku-Tbilisi-Ceyhan oil pipeline. The line connects to the Kazakh port at Aktau on the Caspian Sea.

Two of the country’s three deputy prime minister positions — held by Birganim Aytimova and Karim Masimov — were eliminated. Aytimova retains her position as education and science minister, and Masimov remains presidential adviser for international and economic affairs.

Zagipa Balieyeva became minister of justice. Baliyeva was born in Zhalanash, a village in the Alma-Ata region. From 1992 to 1994, Baliyeva worked as head of the legal department of the Almaty municipal administration. From 1994 to 1995, she was deputy chairwoman of the Committee of the Supreme Council of the Republic of Kazakhstan on economic reforms. In March 1995, she was named secretary of the Central Election Commission and became the commission’s chairwoman in January 1996.


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AzerbaijanIran and Azerbaijan signed a nonaggression pact May 16 barring each country from allowing a third party to use its soil to launch an attack against the other.

KyrgyzstanSherkozi Mirzakarimov, who previously served as first deputy interior minister, became interior minister.

Prime Minister Kurmanbek Bakiyev named Toygonbek Kalmatov, a former member of parliament from the southwestern Dzhalal-Abad Region, head of the Ministry of International Integration and Cooperation. Taalay Kadyrov took over as first deputy foreign minister. He previously worked for the Foreign Ministry and recently worked in the representative office of the International Organization for Migration.

Kadyrbek Sarbayev, previously a representative for Kyrgyzstan at the Shanghai Cooperation Organization, was appointed deputy foreign minister. He will be responsible for countries outside the CIS.

TurkmenistanMinister of Power Engineering and Industry Atamurat Berdiyev took the post of deputy chairman of the Cabinet of Ministers, replacing Yolli Gurbanmuradov, who was arrested on corruption charges. Yusup Davudov took over Berdiyev’s portfolio.

Deputy Minister of Water Economy Tekebay Altuyev was promoted to minister of water economy.


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