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  2003 2002 2001 Ranking(2003)
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Millions of US $ 433,491 346,520 310,000 16
         
GNI per capita
 US $ 2,610 2,140 1,750 97
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Update No: 333  (25/09/08)

Turmoil and tumult
When President Mikhail Saakashvili of Georgia ordered his troops into South Ossetia on August 7, he started something much bigger than he realised. A strong reaction by the Kremlin was inevitable. Did he act on prompting from certain people in the upper echelons of some Western security organisation? 

'A new cold war' is an exaggeration to describe the situation, but a distinctly cooler climate now prevails in Russia's relations with the West, especially the US.

NATO denies responsibility for war in Georgia
Was he put up to it by the Americans, or rather some unidentified figure in the Western alliance, promising support? It would have been a major miscalculation if he did believe it. The Caucasus is not the remit of the West, but traditionally Russia's.

NATO has denied provoking August's five-day conflict between Russia and Georgia, a spokesman for the alliance said on September 18, after Russian President Dmitry Medvedev accused it of sparking the conflict. Medvedev had said NATO "provoked the conflict" between Russia and Georgia last month, adding that Russia was "being pushed... behind an Iron Curtain. I would like to underline again that this is not our path. There is no sense for us in returning to the past."

NATO Secretary General Jaap de Hoop Scheffer meanwhile pledged "full solidarity" with the ex-Soviet republic, following an informal meeting with the 26-nation bloc's defence ministers in London. De Hoop Scheffer told reporters at a press conference in London that "NATO is in full solidarity ... with the Georgian people and with the Georgian government. We have an intensive partnership, an intensive dialogue, an intensive high-level political engagement with Georgia," he added.

Asked for his response to Medvedev's accusations earlier, NATO spokesman James Appathurai told AFP: "There is nothing provocative about supporting Georgia's democratic development, nor anything provocative in helping them meet their aspirations to come closer to the Euro-Atlantic community."

Georgian efforts to become part of NATO have infuriated Russia, which objects to the prospect of its old Cold War foe extending to its borders.

In a separate development likely to anger Moscow, US Defence Secretary Robert Gates and his Czech counterpart signed an agreement clearing the way for stationing US forces to operate a missile defence radar in the Czech Republic. This is planned to be in tandem with a defence system in Poland. The Kremlin threatens to station nuclear weapons against the two states, its former allies in the Warsaw Pact.

The brief Georgia-Russia war overshadowed the talks, which were originally intended to focus on the alliance's continuing transformation to a more flexible regional security bloc, and the conflict has chilled Russia's relations with the West to a degree not seen since the Cold War.

On September 18, British Prime Minister Gordon Brown said, after talks with visiting Georgian Prime Minister Lado Gurgenidze, Britain was in "full support of the territorial integrity of Georgia and we will be giving financial and economic support to Georgia, and urging other countries to do so. We will be working with our European partners to ensure that there is sufficient support for the reconstruction of Georgia," he added.

Both Scheffer and Gates spoke cautiously of how to respond to Russia following the conflict. Scheffer said he foresaw "no U-turn in NATO policy" despite uncertainty about Russian intentions and said the Georgia conflict would not be resolved "if we seek to punish Russia".

Gates, meanwhile, urged NATO to avoid provocation in its response to Russia, adding he thought concern among members on the issue "has more to do with pressure and intimidation than it does any prospect of real military action."

Brown meanwhile told Sky News television that supporting Georgian and Ukrainian membership to NATO was "the right thing to do." He added: "If a sovereign country, free to make its own decisions, wishes to be part of a democratic group that has quite clear principles attached to its membership then we should be prepared to look at that." 

OSCE banned by Russia
Attempts to have military monitors of the Organisation for Security and Cooperation in Europe (OSCE) placed inside South Ossetia, failed on September 18 when Moscow flatly said no. 

The EU under the leadership of President Nicolas Sarkozy of France has negotiated the dispatch of 200 EU monitors. They will be stationed in the Russian defined 'buffer zone' outside the two breakaway regions, Abkhazia and South Ossetia, which 8,000 Russian troops are garrisoning. The Kremlin infinitely prefers dealing with continental Western Europeans to the US or the UK. When Condoleezza Rice says Russia is facing pariah status, she is wrong as regards the EU. She is speaking for the US State department, but not for much longer. Any US president with an ounce of sense is going to forge a new relationship with Russia next year. 

Gazprom to the fore
The point is that Europe needs Russian energy far more than the US. One of the main winners in the Russian- Georgian war in South Ossetia was Gazprom. And not only in economic terms, but also in geopolitical terms. That does not mean that Russia's biggest state company was involved in unleashing the war or, indeed, took part in it in any way. They had nothing to do with it. But the fact is that the war was a severe blow against Gazprom's competitors, or more specifically, the rival infrastructure projects for delivering gas to Europe. 

It is through Georgia that the so- called "fourth corridor" runs, by which hydrocarbons and especially natural gas reach the EU countries. (The first corridor is from Russia, the second is from Norway, and the third is from Algeria). 

The biggest gas pipeline runs through Georgia: Baku-Tbilisi- Erzurum (Turkey), from where the gas continues towards southern Europe. With the growth in the volume of extraction in Azerbaijan, the pipeline's capacity could rise from today's 6 billion cubic meters a year to 20 billion by 2014. Even if it did not stop deliveries, the war, first of all, pushed gas prices up, and second, it was bound to influence plans for the expansion of the "fourth corridor."

True, the conclusions from the war could be twofold. The BBC claims that the Russian-Georgian war could be interpreted by the gas and oil extracting countries as a show of strong pressure by Moscow, pressure that could also be turned against them, which might make them abandon plans to support non-Russian - essentially, anti- Russian - projects for the delivery of hydrocarbons to Europe. But exactly the opposite conclusion is also possible. For the EU, the main value of the Baku-Tbilisi-Erzurum pipeline is that it has nothing to do with Russia, and therefore Gazprom. There could be a boom in non-Russian projects with the support of the Europeans. Germany, for instance, has already sounded out the subject of pipelines as one of the priorities in postwar talks. Berlin is threatening Moscow that "without the help of the EU it will be difficult for Russia to modernize the gas infrastructure." The same arguments also apply to the Georgian transit oil pipelines, such as Baku-Tbilisi-Ceyhan, for instance. 

Wider effects on the economy
Russia's financial markets already lost foreign confidence earlier this year over disagreements between BP executives and Russian executives on how to invest profits from the jointly owned TNK-BP oil company. Just after the Russia-Georgia crisis, the (London) Telegraph reported that the unexpected costs of the war had an instant effect on Russian markets, that Russia's economy suffered from chronic inflation, and that falling crude prices are threatening a major trade deficit. If Russia decides to embrace isolation in this kind of insecure global environment, its leaders must understand that it is the general population that will face economic and social hardship as a result. 

The drop by 37% in world oil prices from a high of $147 per barrel has been the prime reason for economic slowdown and a massive fall in the Russian markets by 57%. The government has poured liquidity into them to try and correct the situation. But the impact of the August war has not helped to restore investor confidence, any more than BP's and Shell's difficulties with their Russian jvs.

But if investors don't return and oil prices fall further in the wake of the global financial crisis in the third week of September, the Russian boom may begin to look like a short-lived miracle. 

 

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