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Russia Faces Deadline in Twelve Weeks to Pay Biggest-Ever Arbitration Penalty

Just eighty-seven days before Russia is mandated to pay a $50 billion penalty to the former owners of the Yukos oil company, there is no public sign yet of a settlement in the dispute, raising the chances that courts in Europe and the US will be asked early next year to authorize the seizures of Russian state-owned airliners, ships, real estate or other commercial property. That step would only further embitter the relations between Russia and the West that have hardened this year over Russia’s invasions of Ukraine.

A ruling against Russia in July by a Dutch arbitration tribunal means that legal machinery is in place to begin such seizures, said Urban Rusnak, the secretary general of the Energy Charter Secretariat, an international treaty organization that seeks to stabilize global energy commerce. At an Atlantic Council forum, Rusnak said he would not be surprised if Russia and the former Yukos shareholders work toward a settlement. In an interview, Atlantic Council analyst David Koranyi, expressed doubt that a settlement is likely.

Rusnak, a Slovak career diplomat, spoke to energy commerce and policy specialists October 20 at the Council. At the forum, he and other participants also said the risk appears to be limited that the Russia-Ukraine conflict will trigger a true crisis in gas supplies to Europe this winter.

The Yukos Case: Seize Russian Assets?

The Yukos case is rooted in the Russian government’s campaign, a decade ago, to undercut the influence of Yukos’s owner, Mikhail Khordokovsky, who had become the country’s richest person and a frequent critic of President Vladimir Putin. Putin’s government arrested and imprisoned Khodorkovsky for a decade, and then seized Yukos for what it said were unpaid taxes. The Netherlands-based Permanent Court of Arbitration ruled in July that the seizure had been a political attack rather than a regulatory act, and said Russia should pay $50 billion in compensation to the company’s former stockholders.

Russian Justice Minister Aleksandr Konovalov said this month Russia will appeal that ruling and a similar one in the case by the European Court for Human Rights. But “getting an appeal, much less winning it, does not look likely,” said David Koranyi, the deputy director of the Atlantic Council’s Dinu Patriciu Eurasia Center. Koranyi also voiced doubt that Putin’s government would retreat from what was “a political decision” to dismantle Yukos by negotiating a settlement with its former owners. (Khodorkovsky, whom Putin released from prison into exile last year, vowed in August to revive his political challenge to the Russian leader.)

A lawyer for the ex-shareholders, Tim Osborne, told the German newsweekly Der Spiegel that his clients will begin suing in German, British, US, Dutch, and French courts for Russian assets in those countries to be seized on their behalf. (Diplomatic and other properties protected by Russian state sovereignty would not be subject to seizure.)

Such an escalation of the dispute would cap what Marat Terterov called “a ‘special’ year for relations with Russia”—indeed the worst, he told the Atlantic Council audience, since the early 1980s, when the Soviet Union had invaded Afghanistan and the West had boycotted Moscow’s 1980 Olympic Games. Terterov heads the non-profit Brussels Energy Club, which co-hosted Rusnak’s appearance at the Council.

Europe Has Options for Winter-time Gas

Rusnak and other participants in the October 20 forum also discussed the risks of energy shortages in Europe this winter in the event that the Ukrainian-Russian dispute prompts Moscow to interrupt the Russian gas supplies that or pass through Ukrainian pipelines to European customers. Rusnak and Chris Goncalves, a senior analyst in Washington on gas and energy markets for Berkeley Research Group, said media coverage may have created too great a public concern about absolute shortages of gas in Europe.

“Russia prides itself on its reliability” as a supplier to its gas customers, Goncalves told the audience, and is unlikely to let its dispute with Ukraine interrupt the flows. Also, the continent has broadly adequate capacity to import liquid natural gas (LNG) to compensate for any Russian cutoff, Goncalves said. “If they cut off supply, LNG is going to come in at twelve or thirteen [dollars per million BTUs] instead of nine or ten, and the market’s going to be resolved,” he said. Still, the LNG solution would leave several countries out in the cold, said Koranyi. Bulgaria, Serbia, Slovakia, Poland, and "to some extent Hungary" lack pipeline connections to LNG terminals, and be unable to access those imports, he said.

Other points in the discussion included these:

  • While US gas exports are set to increase, they “are not a silver bullet” that will allow Europe to end its reliance on Russian gas, Rusnak said. US gas will flow as well to competing markets, and the planned 2016 completion of expansion work at the Panama Canal will facilitate the flow of US gas westward to Asia instead of eastward to Europe, he said.
  • Rusnak will meet US officials in Washington this week to discuss a “revitalization of US participation in the Energy Charter process,” he said. The Energy Charter Treaty, signed in 1994, has 52 signatory states, which are bound to rules meant to establish open energy markets and non-discriminatory treatment for energy companies and investors. The United States and several additional countries are observers to the process who have signed an earlier, non-binding agreement. Russia signed the treaty but did not ratify it, and announced in 2009 that it would withdraw from its provisions.

James Rupert is an editor at the Atlantic Council.

An Impressive Nordic Defense Initiative Should Invite the Three Baltic Nations to Join

As Russia’s attacks on Ukraine revive concerns about the security of its northwestern neighbors as well, last month’s NATO summit conference took two noteworthy steps, among others, to address the Russian danger. For one, the allies authorized a new quick-response force to reassure the Baltic States—Estonia, Latvia, and Lithuania—of the alliance’s ability to protect them.

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Poroshenko's Party Leads; Yatsenyuk Improves Chance of Remaining Prime Minister

On Sunday, Ukrainians will elect their first parliament since the Maidan revolution and the Russian invasions of Crimea and Donbas. Kyiv-based political analyst Brian Mefford, now a nonresident senior fellow of the Atlantic Council, analyzes Ukrainian politics and elections on his website’s blog. Mefford’s analysis will feature on New Atlanticist and the Atlantic Council’s UkraineAlert newsletter, beginning with his reading this week of the prospects for Sunday’s vote and Ukraine’s next government.

Mefford’s key observations this week are these:

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Kyiv Says It Fires 39 Officials as Voters Show Frustration Over Continued Corruption

Eight months after Ukrainians forced the ouster of President Viktor Yanukovych, they will elect a parliament amid rising public anger over the persistence of government corruption under the still-new regime of President Petro Poroshenko. Public discussion about how many new leaders are the same as the old crowd has fueled the wave of attacks in recent weeks in which groups of men have accosted politicians on the street, accused them of graft, and heaved them into street-side trash dumpsters.

Prime Minister Arseniy Yatsenyuk’s office said it decided yesterday to dismiss thirty-nine officials, including “heads of central executive bodies” and “deputy ministers” after initial investigations of corruption allegations. That statement, on the Cabinet of Ministries website, also laid out a fourteen-month schedule for anti-corruption investigations of thousands of officials, starting with the top ranks.

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Buoyed by Successes in Europe’s East, Russia's Leader Turns His Gaze to Serbia and Its Neighbors

Russian President Vladimir Putin’s attack on Ukraine aims to deny that nation a European future, partly by closing the door permanently to membership in NATO or the European Union. Putin’s aims, however, are not limited to extending a Russian sphere of influence over neighbors with Russian-speaking populations. Southeast Europe also figures in Putin’s plans to upend the post-Cold War order in Europe.

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Two suicide bombing attacks in Yemen last week took the lives of at least 67 people and wounded more than 75 people, widely assumed to be the handiwork of al-Qaeda in the Arabian Peninsula (AQAP). This horrendous loss of life underscores the need for United States and its allies to reevaluate how we combat extremist groups and to think deeply about the connection between political legitimacy, governance, and security. Despite Washington's attention on the Islamic State, AQAP still poses a grave threat, not only for US citizens, as periodic high-alert travel warnings tell us, but more acutely for Yemenis themselves.

Al-Qaeda's ability to exploit political instability—most recently caused by the rebel Houthi movement's shocking incursion into Sana'a—and ungoverned spaces throughout Yemen should be a primary concern. This highlights major shortcomings in the US approach to addressing threats from terrorist networks seeking to harm Americans, as outlined in two new Atlantic Council publications, "Do Drone Strikes in Yemen Undermine US Security Objectives?" and "A Blueprint for a Comprehensive US Counterterrorism Strategy in Yemen." Instead of taking a short-term tactical approach that relies heavily on unmanned drone strikes, the US must develop a long-term strategy to address the underlying drivers for extremism that allow terrorist groups to thrive in Yemen.

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But Voters Doubt the Political Class, So a Technocratic Government Offers the Best Hope

Four years after Tunisia overthrew its dictator and ignited the Arab Spring revolutions in Egypt, Libya and Yemen, its 11 million people are nearing the end of their country’s formal political transition. Tunisian voters will elect a parliament on October 26 and a president on November 23, each for a five-year term.

As it approaches this finish line of sorts, Tunisia seems to be the only one of five Arab nations in transition (Syria being the fifth) that is on a clear path to the establishment of a democratic, more stable future. Still, according to Haykel Ben Mahfoudh, the election preparations include clear warning signs of public mistrust with the election process, the established political parties and the political class as a whole. This means the country’s best hopes may lie in creating a relatively technocratic government that focuses matter-of-factly on delivering better services to the citizenry, Ben Mahfoudh writes on the Atlantic Council’s MENASource blog.

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Fred Hof: US Policy Needs a Ground Game, and Here Are Two Ways to Build It

The US military has escalated air strikes against the Islamist militant ISIS fighters who have been closing in on the Syrian town of Kobani and the nearby Turkish border, in large part because the Syrian civil war is now threatening order in Turkey, a critical NATO ally.

But three weeks of US airstrikes on ISIS in Syria has not turned back the group’s advance, and even an intense bombing campaign is not going to defeat ISIS, according to the Atlantic Council’s Fred Hof, a former State Department advisor to President Obama on Syria. Halting ISIS will require a capable force on the ground as well, Hof told CBS News Tuesday. “Without a ground component … this is going to be an exercise in futility,” he said.

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It is South Asia
, in a sense, that has won the Nobel Peace Prize this year. The Norwegian Nobel Committee has rightly honored Pakistan’s Malala Yousafzai for her advocacy of education for young girls, and India’s Kailash Satyarthi for his crusade against child labor and enslavement.

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Former NATO Commander Says Every US Strategic Interest Is Tied to Russia-Ukraine Crisis

America’s five most broadly dangerous 21st-century challenges are disparate, says former presidential candidate and retired senior general Wesley Clark. They stretch from an aggressive China and frail cyber-security to climatic disruptions, unstable financial systems, and terrorism rooted in the Islamic world.

All of these problems, Clark says, will become tougher to address if the United States fails to help Ukraine defend itself against Russia’s war. That is because President Vladimir Putin is seeking not only to destroy or maim Ukraine’s independence from Moscow. His assault on Ukraine also is a shock-and-awe demonstration for all of Eastern Europe (and others) that NATO’s security umbrella is meaningless in a region that Russia defines as its strategic backyard.

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