Sometimes politics complicate trade. Sometimes trade complicates politics.

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This is a fact that the Obama administration is relearning in its dealings with Russia. It turns out that Putin may actually get away with his annexation of Crimea, and Russia’s international trade positions are key to this possibility.

Central to this problem is Afghanistan. As it currently stands, US forces are slated to largely leave the country by the end of 2015. In order to facilitate this, contracts have been drafted over the past two years for Afghanistan to import military equipment and replacement parts from Russia. These are not insignificant either: Russian company JSC Rosoboronexport has been contracted jointly by the US and Afghan government to supply 63 attack helicopters (worth more than $1 billion) to jump-start Afghanistan’s burgeoning air force. And once you have a Russian-made helicopter fleet, what is going to constitute a significant portion of your future imports? Russian-made replacement parts. To make matters even more complicated, Boeing has strong ties to Rosoboronexport, such as a joint venture titanium manufacturing facility in Russia.

President Obama has issued an executive order late last month allowing him to sanction Russia’s top military equipment exporters and their executives, but has yet to act on it for reasons above. Congress on the other hand, is currently considering legislation that would ban any American company from doing business with Rosoboronexport; Senator John Cornyn (R-TX) is spearheading the effort. The alternative would be to shift the Afghanistan air force contracts to be filled by American-made chinooks, but that would cause substantial delays. With delays come political consequences, considering the importance that the Obama administration has placed on withdrawal timetables in Iraq and Afghanistan.

Another player has a horse in the race, though. The Pentagon is strongly opposed to shifting the contracts away from Rosoboronexport, maintaining that the goal, first and foremost, is to provide Afghanistan with an air force capable of fulfilling their current needs by the end of 2014 (ahead of US withdrawal). In order to meet this timetable, the agreement with Rosoboronexport must go ahead as planned, they say. Significant delays will severely hamper the Afghan government’s ability to combat its Taliban and Afghan foes. It is also worth noting that NATO is also intensely, logistically reliant on Russian cooperation to supply Afghanistan through former Soviet territories (such as Uzbekistan, Kyrgyzstan, and Turkmenistan). Russia may not be so compliant with the running of troops and equipment through their backyard if Rosoboronexport’s pocketbook takes a hit.

Further complicating matters is a pending deal between Rosoboronexport and Tehran. The trade deal stipulates that the Russian company will export it’s most advanced air defense missile system to Iran, something that will complicate the nuclear talks with the US, Israel, Iran immensely. This deal brought US sanctions against the company nearly seven years ago, and adds one more lever that Putin can apply to the West’s efforts to stymie his plans in Ukraine. 

When I first heard of the Crimea annexation, I agreed with John Kerry: Russia’s 18th century behavior could not possibly succeed in the 21st century. However, on closer examination, I think the situation highlights the incredible power of global trade positions. Russia is a nexus of exporting defense technologies and equipment (which is often overlooked in favor of its oil and natural gas exports), and this position gives it more power at the negotiating table that first meets the eye. It may just be enough for Putin to get away with Crimea.

Sources:

Ukraine Tensions could create problems for Boeing

http://online.wsj.com/news/articles/SB10001424052702304585004579417501039332342?

A Ukrainian Connection in Afghanistan Elections

http://online.wsj.com/news/articles/SB10001424052702304585004579417501039332342?

Russia Worries Spur Second Thought on Defense Cuts

http://blogs.wsj.com/washwire/2014/03/05/russia-worries-spur-second-thoughts-on-defense-cuts

 

 

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