Washington Post - 07.23.2001

 

The Washington Post

Putin's Choice Of Ages

By Jackson Diehl

A senior administration official recently described Vladimir Putin's dilemma this way: The Russian president wants to rebuild Moscow's influence in the world, but he must choose between two mutually exclusive strategies for doing it. He could try the 19th century big-power play, by bullying Russia's neighbors into becoming satellites and striking alliances with states that help counter Western clout, such as Iraq and Iran. Or he could go the 21st century way, by liberalizing his economy, joining the global market and trying to integrate Russia into Europe's economic and security systems.

At present Putin does a little of both. His words often proclaim the 21st century strategy, while Russia's actions more often bespeak the 19th century game. But one interesting test of where this still-puzzling Kremlin leader is going is shaping up this summer in the Baltic country of Lithuania, a former Soviet republic that is now one of the leading candidates to join the European Union and NATO.

Lithuania, unlike Russia, has thrived since the breakup of the Soviet Union. But it has a big economic problem: an energy system that binds it almost exclusively to Russian supplies and that thus carries the risk of pressure by strangulation. Moscow already used the cutoff card once, in 1991. And Putin's government has shown a decided taste for employing energy supplies to gain some 19th century-style leverage: It threatened Georgia with a cutoff, tried to take over Ukraine's electricity grid and has worked hard, though unsuccessfully, to establish control over the pipelines that will carry the vast new oil and gas supplies from the Caspian region.

Lithuania, like several other NATO candidates, has been engaged in a quiet struggle to free itself from the vise of Russian energy dependence and the related efforts by powerful Moscow-backed industrial groups to take over power plants, refineries and other utilities as they are privatized. It's not only that such independence makes East European countries more attractive to the West; these governments feel that the real battle over NATO and EU expansion is being fought on this ground.

"Putin doesn't bother to argue loudly against NATO expansion, since he knows that won't work," says an East European ambassador in Washington. "Instead the Russians are trying an inside strategy. They want to take control over key industries and power supplies in our countries in such a way as to make them completely unattractive to NATO."

Lithuania saw this threat coming before most of its neighbors -- which is why, in 1999, it agreed to give Tulsa-based Williams International, a medium-sized American oil company, operating control and a 30 percent ownership share in Mazeikiu Nafta, a company that controls what was the largest oil refinery in the former Soviet Union. The complex represents no less than 10 percent of Lithuania's economy; though it is still dependent on supplies of Russian crude, the government figured it could establish its economic independence by getting an American partner.

What it got, instead, was a cold war with Russia's largest oil company, Lukoil, which had a monopoly from the Russian government over the Baltic oil market. Lukoil cut oil supplies to Mazeikiu and refused to enter into a supply agreement; its executives vowed to starve the refinery -- and Lithuania -- unless control of the company was given to Lukoil. Meanwhile, Russia's allies in Lithuania argued that Williams had gotten a sweetheart deal and then failed to meet its terms.

Four months ago, Lithuanian president Valdus Adamkus traveled to Moscow and raised the issue directly with Putin. His pitch was simple: release Lithuania from Lukoil's supply monopoly and thus its capacity for extortion. By doing so, he argued, Putin would not only be helping Lithuania; he would be helping his own announced goal of economic reform by encouraging free-market competition among Russian oil companies. In effect, he would be choosing the 21st century model of Russian influence over the 19th century version.

Putin was noncommittal. But two months later, Williams and the Lithuanian government struck a long-term supply deal with Yukos, the second largest Russian oil company, which would give the Russians a stake in the refinery but not the controlling share Lukoil demanded. Lithuanian and U.S. officials believe this compromise will keep the Lithuanian oil industry independent and prevent its use as a blunt instrument of economic or political pressure from Mosocw.

If, that is, Putin goes along with the deal. A government-aligned newspaper recently denounced the Williams-Yukos accord as bad for Russia; Lukoil's allies in Lithuania mounted a campaign to block the accord in parliament. The battle in Lithuania seem to turn last week when left-wing Prime Minister Algirdas Brazauskas, aware that NATO membership could hang on his decision, assured Williams and Secretary of State Colin Powell that he would back the deal. Still, if Putin fails to revoke Lukoil's government-granted monopoly, the contract still may fall apart. "This is a test for Putin," says Vygaudas Usackas, Lithuania's ambassador to the United States. "If Putin breaks the monopoly and allows the free supply of oil to Lithuania, it would be a sign that Russia is really changing."