Russia throws North Korea lifeline to stymie regime change

Russia throws North Korea lifeline to stymie regime change

By Andrew Osborn

MOSCOW (Reuters) – Russia is quietly boosting economic support for North Korea to try to stymie any U.S.-led push to oust Kim Jong Un as Moscow fears his fall would sap its regional clout and allow U.S. troops to deploy on Russia’s eastern border.

Though Moscow wants to try to improve battered U.S.-Russia relations in the increasingly slim hope of relief from Western sanctions over Ukraine, it remains strongly opposed to what it sees as Washington’s meddling in other countries’ affairs.

Russia is already angry about a build-up of U.S.-led NATO forces on its western borders in Europe and does not want any replication on its Asian flank.

Yet while Russia has an interest in protecting North Korea, which started life as a Soviet satellite state, it is not giving Pyongyang a free pass: it backed tougher United Nations sanctions against North Korea over its nuclear tests last month.

But Moscow is also playing a fraught double game, by quietly offering North Korea a slender lifeline to help insulate it from U.S.-led efforts to isolate it economically.

A Russian company began routing North Korean internet traffic this month, giving Pyongyang a second connection with the outside world besides China. Bilateral trade more than doubled to $31.4 million in the first quarter of 2017, due mainly to what Moscow said was higher oil product exports.

At least eight North Korean ships that left Russia with fuel cargoes this year have returned home despite officially declaring other destinations, a ploy U.S. officials say is often used to undermine sanctions against Pyongyang.

And Russia, which shares a short land border with North Korea, has also resisted U.S.-led efforts to repatriate tens of thousands of North Korean workers whose remittances help keep the country’s hard line leadership afloat.

“The Kremlin really believes the North Korean leadership should get additional assurances and confidence that the United States is not in the regime change business,” Andrey Kortunov, head of the Russian International Affairs Council, a think-tank close to the Russian Foreign Ministry, told Reuters.

“The prospect of regime change is a serious concern. The Kremlin understands that (U.S. President Donald) Trump is unpredictable. They felt more secure with Barack Obama that he would not take any action that would explode the situation, but with Trump they don’t know.”

Trump, who mocks North Korean leader Kim Jong Un as a “rocket man” on a suicide mission, told the United Nations General Assembly last month he would “totally destroy” the country if necessary.

He has also said Kim Jong Un and his foreign minister “won’t be around much longer” if they made good on a threat to develop a nuclear-tipped missile capable of reaching the United States.

STRATEGIC BORDER

To be sure, Beijing’s economic ties to Pyongyang still dwarf Moscow’s and China remains a more powerful player in the unfolding nuclear crisis. But while Beijing is cutting back trade as it toughens its line on its neighbor’s ballistic missile and nuclear program, Russia is increasing its support.

People familiar with elements of Kremlin thinking say that is because Russia flatly opposes regime change in North Korea.

Russian politicians have repeatedly accused the United States of plotting so-called color revolutions across the former Soviet Union and any U.S. talk of unseating any leader for whatever reason is politically toxic in Moscow.

Russia’s joint military exercises with neighboring Belarus last month gamed a scenario where Russian forces put down a Western-backed attempt for part of Belarus to break away.

With Russia due to hold a presidential election in March, politicians are again starting to fret about Western meddling.

In 2011, President Vladimir Putin accused then U.S. Secretary of State Hillary Clinton of trying to stir up unrest in Russia and he has made clear that he wants the United States to leave Kim Jong Un alone.

While condemning Pyongyang for what he called provocative nuclear tests, Putin told a forum last month in the eastern Russian port of Vladivostok that he understood North Korea’s security concerns about the United States and South Korea.

Vladivostok, a strategic port city of 600,000 people and headquarters to Russia’s Pacific Fleet, is only about 100 km (60 miles) from Russia’s border with North Korea.

Russia would be fiercely opposed to any U.S. forces deploying nearby in a reunited Korea.

“(The North Koreans) know exactly how the situation developed in Iraq,” Putin told the economic forum, saying Washington had used the false pretext that Baghdad had weapons of mass destruction to destroy the country and its leadership.

“They know all that and see the possession of nuclear weapons and missile technology as their only form of self-defense. Do you think they’re going to give that up?”

Analysts say Russia’s view is that North Korea’s transformation into a nuclear state, though incomplete, is permanent and irreversible and the best the West can hope for is for Pyongyang to freeze elements of its program.

NOTHING PERSONAL

Kortunov, the think-tank chief close to the Russian Foreign Ministry, said he did not think the Kremlin’s defense of Kim Jong Un was based on any personal affection or support for North Korea’s leadership, likening Moscow’s pragmatic backing to that it has given Syria’s President Bashar al-Assad.

Moscow’s position was motivated by a belief the status quo made Russia a powerful geopolitical player in the crisis because of its close ties to Pyongyang, Kortunov said, just as Russia’s support for Assad has gifted it greater Middle East clout.

He said Moscow knew it would lose regional leverage if Kim Jong Un fell, much as its Middle East influence was threatened when Islamist militants looked like they might overthrow Assad in 2015.

“It’s a very delicate balancing act,” said Kortunov.

“On the one hand, Russia doesn’t want to deviate from the line of its partners and mostly from China’s position on North Korea which is getting tougher. But on the other hand, politicians in Moscow understand that the current situation and level of interaction between Moscow and Pyongyang puts Russia in a league of its own compared to China.”

If the United States were to remove Kim Jong Un by force, he said Russia could face a refugee and humanitarian crisis on its border, while the weapons and technology Pyongyang is developing could fall into even more dangerous non-state hands.

So despite Russia giving lukewarm backing to tighter sanctions on Pyongyang, Putin wants to help its economy grow and is advocating bringing it into joint projects with other countries in the region.

“We need to gradually integrate North Korea into regional cooperation,” Putin told the Vladivostok summit last month.

(Editing by David Clarke)

After Iran’s nuclear pact, Iranian state firms win most foreign deals

A staff member removes the Iranian flag from the stage after a group picture with foreign ministers and representatives of Unites States, Iran, China, Russia, Britain, Germany, France and the European Union during the Iran nuclear talks at the Vienna International Center in Vienna, Austria

By Yeganeh Torbati, Bozorgmehr Sharafedin and Babak Dehghanpisheh

WASHINGTON (Reuters) – When world powers agreed in 2015 to lift sanctions on Iran in return for curbs on its nuclear program, the deal’s supporters in the United States, Europe and Tehran hoped renewed trade and investment could boost Iran’s private sector and weaken the state’s hold on the economy.

But a Reuters review of business accords reached since then shows that the Iranian winners so far are mostly companies owned or controlled by the state, including Iran’s Supreme Leader, Ayatollah Ali Khamenei.

Of nearly 110 agreements worth at least $80 billion that have been struck since the deal was reached in July 2015, 90 have been with companies owned or controlled by Iranian state entities, the Reuters analysis shows.

U.S. President-elect Donald Trump, who takes office on Friday, has threatened to scrap the accord, which came into force in January 2016. In Iran, Khamenei and other anti-Western hardliners have repeatedly criticized it because they are concerned it would open the door to Western involvement in Iran’s economy. The accord also promises to dominate Iran’s presidential elections due in May. Khamenei’s criticism has helped hardliners undermine President Hassan Rouhani, who supported the deal, as he tries to win a second term.

No matter what hardliners have said about the nuclear pact, though, the Reuters analysis shows that businesses which answer ultimately to the Supreme Leader stand to gain from it. This could help shield the accord from its Iranian critics, according to one analyst.

“Iran’s leaders have probably calculated that ensuring politically connected businesses benefit from sanctions relief will protect the deal,” said Richard Nephew, a former U.S. negotiator with Iran on the deal and now a scholar at Columbia University.

Officials at Iran’s mission to the United Nations and Rouhani’s office did not respond to requests for comment. No one at Khamenei’s office could be reached.

WINNERS

The Reuters analysis drew on interviews with company officials, statements by Iranian, European and Asian companies, Iranian news reports, ownership data from the Tehran Stock Exchange, filings with Iran’s official company registry and statements by the U.S. Treasury.

Many deals are preliminary agreements with no published financial value. The deals span energy, infrastructure, pharmaceuticals, and other key sectors. South Korean, Italian, French, German, and Russian companies have signed the most.

The review found that beneficiaries of the nuclear pact include Setad Ejraiye Farman-e Hazrat-e Emam, also called EIKO, an organization overseen by Khamenei with stakes in nearly every sector of Iran’s economy. It found companies in which entities controlled by Khamenei have a large or majority stake, including those that are part of the economic empire of the Islamic Revolutionary Guard Corps (IRGC), have struck at least nine foreign deals worth more than $11 billion in the last 18 months.

Setad said in a statement to Reuters that Iran’s private sector “is reluctant to make large and long-term investments.” Setad and groups like it “create a favorable atmosphere for investment, private-sector development, and the downsizing of the government,” it said. The IRGC declined to comment.

The state dominates Iran’s economy, so state-controlled firms were always likely to win most business after sanctions were lifted. Iranian officials estimate that the private sector makes up only 20 percent of Iran’s economy.

In Iran, “you make money if you’re close to the centers of power,” said Ali Ansari, an Iran scholar at the University of St. Andrews in Scotland. “The economy hasn’t been restructured or reorganized. You’re recycling wealth through the elite.”

Only 17 deals have gone to private companies, by Reuters’ tally. These include a hotel management pact between France’s AccorHotels and Tourism Financial Group, a large conglomerate. Its chief executive is the brother of Iran’s vice-president, Eshaq Jahangiri.

Tourism Financial Group and AccorHotels did not respond to requests for comment on the deal.

Counter to the hopes of supporters of the nuclear accord, the initial wave of investment looks likely to further strengthen the power of the state, including Khamenei, whose power far surpasses Rouhani’s. Supreme Leader since 1989, the cleric controls the judiciary and security forces and the Revolutionary Guards, which direct Iran’s military efforts in Syria and Iraq.

Most sanctions on Iran were lifted under the nuclear accord, so there is no suggestion any partners doing business in the country after the agreement would be breaking any laws.

A U.S. State Department spokesman said the nuclear deal “solves a specific problem, which is making sure that they don’t possess a nuclear weapon … We are not standing in the way of legitimate, permissible business with Iran.”

SUPREME LEADER

Of the 90 deals signed between foreign firms and Iranian state-controlled or state-owned entities, 81 were with companies controlled by Iran’s elected government. These include entities such as the National Iranian Oil Company, large semi-public conglomerates whose top executives are chosen by ministers, and companies owned by government pension funds.

Though Iran holds regular elections and the president has sway over much domestic policy, Khamenei has the final word on state matters, including through his constitutional authority over institutions such as the Guardian Council, which vets candidates hoping to run for office.

Five of the 90 deals went to conglomerates or foundations whose leaders Khamenei directly appoints. These entities – several of which have vast business activities but which Iranian officials have said do not pay full tax – include the religious institution Astan-e Qods-e Razavi, whose economic arm lists 36 subsidiary companies and institutes on its website.

One of them is Razavi Oil and Gas Development Co., which agreed in April to discuss developing a gas field with Saipem, an Italian oil and gas company. A Saipem spokeswoman said it was a preliminary agreement. Officials at Razavi did not respond to requests for comment.

Another winner in this category is Setad. A 2013 investigation by Reuters found Setad built an empire worth about $95 billion on the seizure of thousands of properties belonging to religious minorities, business people, and Iranians living abroad.

In 2013, the U.S. Treasury sanctioned Setad, calling it a “major network of front companies controlled by Iran’s leadership.” The nuclear deal lifted sanctions, allowing foreign companies to do business with the conglomerate.

Reuters identified three deals between foreign companies and Setad units, including the proposed construction of a $10 billion oil refinery.

The other two deals were with Barakat Pharmed, a Setad-owned pharmaceutical company. Nasrallah Fathiyan, a Barakat official, told Reuters that Khamenei doesn’t own Barakat, but that “his supervision is basically guiding all of this investment.” Some of Barakat’s profits, Fathiyan said, go to Setad’s charity arm.

Setad said it is independent, and its income goes toward “economic empowerment, building houses for the underprivileged, building schools and cultural centers” and other activities to help the disadvantaged in Iran.

REVOLUTIONARY GUARDS

Four of the 90 deals with government entities involve firms in which the Revolutionary Guards have large or controlling stakes. Khamenei, as commander in chief, ultimately controls the IRGC.

Even after the nuclear deal, some U.S. sanctions remain in place. These state that foreign companies which knowingly conduct “significant” transactions with the Revolutionary Guards, or other sanctioned Iranian entities, risk penalties. The sanctions effectively banish those targeted from the global financial system.

However, many companies in which the IRGC has an interest are not blacklisted. Three of the four deals Reuters found with IRGC-linked companies are with non-sanctioned Iranian companies that are wholly or significantly owned by the IRGC. A fourth IRGC company is still on the sanctions list and is indirectly involved in one foreign deal.

Sanctions lawyers say the fine print of the remaining U.S. sanctions allows foreign companies to continue to deal with some IRGC-held firms indirectly.

A Treasury spokeswoman declined comment on individual deals, but said a transaction by foreigners with a company in which the IRGC or another sanctioned entity had a “passive, minority” stake “is not necessarily sanctionable.” The foreign party should ensure the deal does not involve a sanctioned entity, she said.

“At a policy level I think this is a gap that needs to be closed,” said Peter Harrell, a former State Department official who helped develop sanctions against Iran. “As problematic and troubling as some of these deals may appear to be from a policy perspective, on the face of it, there’s not a strict legal problem.”

(Additional reporting by Isla Binnie and Crispian Balmer in Rome, Stephen Jewkes in Milan, Seoul bureau, Vladimir Soldatkin in Moscow, Georgina Prodhan in Frankfurt, Brenda Goh in Shanghai and Aizhu Chen in Beijing; Edited by Sara Ledwith and Richard Woods)

Russia Sends Troops to Syria

Russian troops have begun a major military deployment to Syria.

The Russian government has been denying the moves, but the American government sent a terse warning to Russia about escalating the conflict.  Russian officials claim they are just helping the fight against terrorism.

“We have always supplied equipment to them for their struggle against terrorists,” Maria V. Zakharova, the Foreign Ministry spokeswoman, said in an interview with the New York Times. “We are supporting them, we were supporting them and we will be supporting them.”

The US has gone as far as to ask nations such as Greece to deny use of their airspace to Russian aircraft transporting troops and weapons to Syria.

Analysts say that it’s likely Russia is using the fact the US has not really attempted to put a force into Syria to their advantage.

“It is basically a chance to play on Obama’s checkerboard,” said Konstantin Von Eggert, an independent political analyst, told the Times, stating it’s as if Russian President Putin is saying: “You want to fight the Islamic State. I am there. I am ready. Ah, sorry, you don’t really want to fight.”

Russia has a key naval base in Syria.