Final note...

"For of men it may generally be affirmed, that they are thankless, fickle, false, studious to avoid danger, greedy of gain, devoted to you while you are able to confer benefits upon them, and ready, as I said before, while danger is distant, to shed their blood, and sacrifice their property, their lives, and their children for you; but in the hour of need they turn against you."

-Niccolo Machiavelli - "The Prince"

This Blog is now officially closed. I wish Vladimir Putin all the best in his next few months as Russian president. And I hope the next few decades will be less hectic than those fateful first decades of the previous century.

Thanks for reading, commenting, and thanks for writing about Russia. Continue to do so, I know of few other countries with more sphinx-like political systems than Russia. The real expert will notice when the sphinx is bluffing.

All the best!

-nikolay i.

What will remain of Fradkov...

Although he has a long way to go before he can catch up to the manner of speech similar to Yeltsin's prime-minister Viktor Chernomyrdin, Mikhail Fradkov in his almost four year tenure has left the Russian public with a bunch of strange quotes. Some are tough to translate into English, so I did the best I could with the others.

"It is time to grab the bird by the horns"

"You journalists, all write that we the siloviki don't know a thing about economics. Yes, I am not an expert in macroeconomics, but my goal as prime-minister is to not make stupid mistakes"

"We have to figure out where to place empty buckets to collect the oil windfall, and how to properly pour with them certain vegetable patches, and we should not forget about the seedlings"

"This question has two keys. One of them, you don't know where to inset. It is important to extract this key so it doesn't break when it is inserted"

"Just chewing, and chewing; when they will spit it out is hard to guess"

"I am happy that we created an investment fund. Although it is empty, it does not spoil the picture"

"How would you define civil service? It is a certain blockhead, who gets little money and always wants to steal something on the side"

"We have already exited from our short pants"

"It is highly unnecessary to show the prime-minister with his twist of the tongue. But try to see the mimics behind the words, even though I speak much more words than I did before"

Putin and Zubkov - Less complex than it seems

When things get complex and unpredictable in Russian politics, most political observers seem to want to go with the flow and tangle things up more and more. While looking for an elephant in a glass of water in the appointment of Viktor Zubkov for the post of Russian prime-minister, many forget the underlying facts of the current economic environment.

While it is undoubtedly true that Mr. Putin would like to leave for the next president a cabinet he himself approves of, and one that would somewhere deep down guarantee the continuity of his policies, Mr Zubkov's expertise is crucial to the problems that Mr. Putin values for the future - financial and economic security.

Russia has already seen the first phases of speculative capital outflow from its capital markets, which resulted in a slight but nevertheless decrease of 5.5 billion USD to its foreign currency reserves. Although, the expected outflow was almost two times less than expected, more withdrawals could be on the way, since it is still unclear if and when the US economy slides into a recession, and who it will pull along with. The amount of sepculative capital still floating in Russia is at a high level, with many investors waiting for results in their carry-trade positions (borrowing in low-interest currencies and buying higher-yielding ruble securities).

As an expert close to the Kremlin, journalist and editor of weekly Profile magazine Mikhail Lenotiev, stated in a recent interview with Ekho Mozkvy radio-station the previous economic bloc of the Russian cabinet did not concern itself enough with financial and economic security of the Russian market despite lobbying from the President's administration. As a result most of Russia's major banks now appear in very shaky positions. As a result of overly generous lending practices around the world and the massive credit boom in Russia, these banks (Russian Standard, MDM Bank, Alfa Bank) are 30% funded by foreign capital. Such a level is highly dangerous to the system according to the first deputy director of Russian Central Bank Gennadi Melikyan.

Add to that the ballooning debt of Russian firms, most of which is owned by foreign investors/banks, the rapidly expanding individual/small business credit market, and a small glitch in the world economy could result in the closure of two or three major banks. The consequences of such a move for the Russian economy will be very severe. Mr. Zubkov, is an expert in all of the above issues and resolving them will be one of his primary missions for the next year at least.

Vladimir Putin's recent statements about Viktor Zubkov's potential as a successor in 2008, and the existence of two more such candidates (besides Sergei Ivanov and Dmitri Medvedev) are his last attempts to throw mud in the water and postpone his decision-making until after the December elections. Even more so, Mr. Putin is reluctant to give an easy ride to the presidency to anyone of the top candidates (Ivanov or Medvedev) by giving one of them a seat as prime-minister. With all of the top seats in the government taken, it is likely that Mr. Ivanov and Mr. Medvedev will have to battle it out from equal positions, providing the elections in March with a substantial aura of "free-election status".

Any talk of Vladimir Putin playing a complex chess game to regain his seat in 2012 (and light the Sochi Olympic flame in 2014) are even more speculative than those about Mr. Zubkov's potential as Russian president. The very day Vladimir Putin loses his seat, he will lose air-time, he will lose his influence, and he will be slowly losing his popularity. Even if the next president has a weak power base behind him, the very fact of being a president is significant enough to battle all major powerbases withing the government and within the President's administration.

No one knows this fact better than Vladimir Putin, who in 2000 faced the entire "Family" (Boris Yeltsin's family members and their loyal supporters along with the oligrachs). Mr. Putin by 2004 managed to convert a cabinet and administration structure of 4:1 against him into a 4:1 for him by carefully utilizing the influences of siloviki bloc. The next president will surely not want to sit and wait four years until Mr. Putin rides into the Kremlin on top of a white horse with shining silver armor.

Blog is on Break!

This blog is on break again. It is August and no news is really coming out anyway. Plus, the never-ending moving process lives on. Hopefully, August 20th will get the blog going again. For now the traditional Music Video - Mongol Shuudan - Moskva. Great song. Enjoy

Lessons from history: "Zinoviev Letter" - USSR and Britain in 1924

Looking at Russo-British relations in the past one finds startling examples, often they are very close replicas of the current stand-off between the two sides. Whether or not appropriate conclusions can be drawn from historic lessons is a different question.

After the Conservative party in Britain lost the December 1923 elections, in January of the following year the Labor party for the first time in its history was granted the opportunity to form the cabinet under the new prime-minster Ramsey MacDonald. In February of that year, Britain formally recognized the young republic of USSR, and diplomatic relations were established on February 2, 1924.

In October of 1924, the British parliament was dissolved after the Labor party lost a crucial vote over the need for criminal persecution of the chief editor of "Workers Weekly" newspaper D.R. Campbell for inciting the military to mutiny if they were sent to counter the protesting workers. Shortly thereafter on October 25, just four days before the scheduled elections the British Foreign Office published in the "Daily Mail" a secret letter whose author was the head of the executive committee of the Comintern Grigoriy Zinoviev, the revolutionary-exporting arm of the new Communist republic.

The letter contained instructions to the British communists regarding tactics to increase socially-stirring propaganda within the army as well as plans to attract Labor party members into the revolutionary scheme. The letter had an effect of a media-bomb and made the biggest contribution to the Labor party's defeat in the elections to their Conservative rivals. They ended up being outnumbered in parliament by more than 3:1.

The new conservative government formed in November under Stanley Baldwin (including Winston Churchill in the spot of chancellor of the exchequer) informed the Soviet Union that bilateral agreements signed with the Soviet republic by the Labor government would not be fulfilled. Diplomatic relations were terminated for a long period.

When British archives for that period were being declassified in the late 1990-s, Jill Bennett one of the chief historians of the Foreign Office began an extensive research process into the "Zinoviev Letter". As was concluded the letter had probably been a concoction by elements of the SIS (MI6) based in Riga, Latvia to help the Conservatives defeat Labour in the 1924 election. In 2006, a new biography of Desmond Morton, Churchill's Man of Mystery: Desmond Morton and the World of Intelligence by Gill Bennett, confirmed that it was a hoax perpetrated by Morton, then with the Secret Intelligence Service of the British government.

Whether or not this particular fact of history is a good lesson for current observes of the Litvinenko and Lugovoi scandals, one clear lesson is that neither side in the dispute should be given the benefit of the doubt; the "presumption of guilt" concept directed at Russia from the West is at best immature, at worst a big deteriorating factor to the scandal. Both sides have interested parties who reap benefits from the diplomatic stand-off; both have the ability to influence the conflict accelerators - the media, the "independent" branches of the state.

Cartoon of the Week

Cartoon of the week; na zlobu dnya as the Russians would say - UK-Russia relations (author unknown)


The Russian government may feel a little more relaxed now that they know who they are dealing with in the diplomatic "war" with Britain. As The Daily Telegraph reported, so far eight British cabinet ministers have confessed to smoking cannabis at various stages in their life and in various amounts. Unfortunately, UK foreign secretary David Miliband and prime-minister Gordon Brown explicitly denied smoking cannabis; had it been the other way round it would explain a lot.

Global private equity re-enters Russia: TPG-Seventh Continent

After approaching some semi-serious hurdles in the US private equity firms are looking for fresh markets; on the top of their to-do list may be Russia. TPG, formerly Texas Pacific Group, was reported to be in early-stage talks to acquire a 50 percent stake in Russia's 7K-investholding, which is in control of one of the country's top supermarket chains Seventh Continent.

The initial purchase price estimated at $1.1-1.2 billion is tiny by Western standards but TPG has expressed the possibility of investing a further $5-7 billion into the supermarket chain over the next nine years if the deal goes through.

Private equity firms generally buy publicly traded companies, taking them private, restructure them and later spin-off as public entities for a handsome profit. TPG with more than $40 billion under management is the only foreign buyout firm operating in Russia, having opened its doors in Moscow this spring. Since then it has expressed an interest in seven or eight projects in Russia. The Seventh Continent deal is the first such project announced.

The deal could be a good opportunity to develop one of the least active areas of global finance in Russia, private equity. As the Financial Times reports:

Carlyle, the US firm, closed its Moscow office in 2005 and ditched plans for a $300m Russian fund. TPG sold off an investment it made in Russia’s PIT brewery, which was bought by Heineken in 2005.

The Russian investment market is dependent on insiders, such as Baring Vostok Capital Partners, which announced a $1bn fund in March for mid-sized investments. Alfa Capital Partners, Sputnik Group and Sun Group are also active.

Seventh Continent, or Sedmoi Kontinent, was one of Russia’s first supermarket chains, opening three stores in Moscow in 1994. By December it had 123 stores, after expansion into regions outside the capital, generating $288m of revenue in the first quarter of 2007.

The move also highlights the strong opportunities for profit in the Russian food retail industry. Yet plenty of competition still exists; X5 retail group, another Russian food retail conglomerate and owner of the Pyaterochka and Perekrostok supermarket chains, has announced plans to invest more than $10 billion dollars in its stores over the next 5-7 years.

The child sent to murder Berezovsky

On June 28th 2006, Russian president Vladimir Putin caused quite a stir in the press when he unexpectedly kissed a child in the tummy during a tour of the Kremlin. Yesterday The Sun reported that on June 21 2007 (almost exactly a year later) an assassination attempt on Boris Berezovsky was foiled by Mi-5 and British Police in London. The details were the following

Police seized the suspect on suspicion of conspiracy to murder after a plot was uncovered for a hitman to kill an outspoken “enemy of Moscow” at the Hilton Hotel on London’s Park Lane.

The assassin was accompanied by a child in a cold-blooded attempt to avoid raising suspicion.

But MI5 and MI6 intercepted intelligence about the plot — due to have been carried out within the last fortnight.

You connect the dots. Such a pity that the "great" book by the "defenders of Russian liberties" Alexander Goldfarb and Marina Litvinenko "The Death of a Dissident" has already been published. It could have been a great epilogue. Thanks to vladimir.vladimirovich.ru for this ridiculous idea. By the way the cold-blooded assassin was deported to Russia, not arrested (because he had no weapons with him!); but no information on the whereabouts of the child. Perhaps he is Putin's successor.

Russia's response: Bombers intercepted in British airspace

Russia may be preparing a very unusual response to the British actions to expel Russian diplomats and tighten visa regulations amid the Litvinenko affair and Lugovoi extradition. As The Times reported today, apparently the British airforce was ready to intercept two Russian bombers on Tuesday who were very close to breaching British airspace.

Two Tu95 “Bear” bombers were dispatched from their base on the Kola Peninsula in the Arctic Circle and headed towards British airspace.

Russian military aircraft based near the northern port city of Murmansk fly patrols off the Norwegian coast regularly, but the RAF said that it was highly unusual for them to stray as far south as Scotland.

Two Tornado fighters, part of the RAF’s Quick Reaction Alert, took off from RAF Leeming, in Yorkshire, to confront the Russian aircraft, after they were shadowed by two F16s from the Royal Norwegian Air Force, The Times has learnt.

“The Russians turned back before they reached British airspace,” an RAF spokesman said.

The newspaper was quick to say there was no evidence to suggest the incident was related to the chilling of relations which has accelerated over the past week, but it is a damn big coincidence. The Russian airforce chief colonel-general Zelin denied reports of Russian long-range bombers approaching close to or breaching foreign airspace yet confirmed that bombing divisions were performing the usual exercises to train the crews for long-range operations.

General Zelin also found the RAF statements of Russian planes changing their course after seeing RAF planes as nonsense, as such operations are planned several months in advance and have nothing to do with politics.

According to Russian daily Vzglyad this was the second such incident since the end of the Cold War; the first occurred this spring, which downplays the coincidence aspect of the situation.

The Tu-95 long-range bomber is a very old airplane and has been in service in the Russian air force for over 50 years now, yet it still has a range of 15,000 km. Unlike the Tu-160 which is considered the core of Russian long-range aviation, the Tu-95 is expected to be in service till 2010 and maybe for a few years after.

Patriot Games : the end of the Litvinenko scandal is near

Britain's response to Russia's refusal to extradite Andrei Lugovoi voiced by the new foreign secretary David Miliband was the most direct response out of all for Britain to maintain face and look firm, and unless any unforeseen actions will be taken by a third party, after Russia's response, the Litvinenko affair will finally reach a dead end.

Britain's response was aimed specifically at Russian agencies that are suspected of aiding Andrei Lugovoi. The four Russian diplomats that will be extradited are as is the usual case in such practice officers of Russia's security services working under diplomatic cover. The visa cooperation consultations which will be suspended affect mostly visas for Russian governmental officials, specifically those of the executive branch, again the various ministries, security services and the President's administration. As Gazeta.ru reported, from now on most of the governmental contacts between Russia and Britain will have to be sanctioned from the very top to get clearance.

The actions of the UK foreign ministry were carefully planned not to hurt regular Russian citizens visiting or working in Britain, and most importantly Russian companies which have established a high degree of mutual dependency in various spheres of involvement from energy cooperation to plain-vanilla IPOs and real estate purchases in London. Mr. Miliband began his report by saying that the situation was paradoxical in that economic ties between Russia and the UK had never been so strong.

Now Britain is waiting to see the actions of its Russian counterpart, it has already heard the Russian foreing ministry calling out Britain's actions as "immoral" and masterminded at the highest levels with the goal of politicizing a criminal investigation. Most analysts expect Russia to extradite four British diplomats and perhaps continue putting pressure on the British Council. But apart from that the options to act rationally for both sides are exhausted.

There can be no talk of cooperation between the criminal investigators of the two sides. Britain claims it has an abundance of evidence to support its claim of Lugovoi's guilt and Russia claims it has received no substantial evidence, referring to it as hearsay. Mr. Lugovoi appearing in an interview with Russia Today television network seated in front of a bookcase with a very visible volume of Sherlock Holmes even complained that he had received no invitation to come to the UK for his trial.

But what happens next? The possible scenarios are in abundance yet all of them seem very unlikely. First, the trial of Mr. Lugovoi may occur in Moscow; second, the trial may occur in a third country; third, Russia will use the issue as a trading tool on the global arena. All of the scenarios stumble on two facts. Both the UK and Russia are in the conflict too deep and it is too late for any of the countries to back off without a major reputation blow (neither the new Brown government wants it nor Putin's administration). The UK also refuses to extradite Russia's most wanted targets - the happy couple of Mr. Berezovsky and Mr. Zakaev. So any potential for mutual concessions on the issue of a possible trial are already slim.

Russia's possible use of the Lugovoi extradition as a bargaining tool in the Iran or the Kosovo debate is ruled out by Russian foreign policy expert Fedor Lukyanov. In an interview with the Financial Times he states that "Russia’s opposition to an international plan to prepare Kosovo for independence is a matter of principle and not a bargaining position designed to extract some sort of concessions from the west."

Thus as of today both the UK and Russia are in a position where they have saved face in front of their own people (yet for Russia a significant blow was made to its reputation on the world stage thanks in part to the foreign press). Financial Times columnists Phillip Stephens has called Britain's actions minimal, but they are enough to put a freeze on the conflict without further consequences for both sides. Is the Lugovoi extradition that important of an issue for British citizens? I do not believe it is even in the top three priorities of the new Labor government. It is definitively lower than the goal of expanding economic cooperation with one of the fastest growing emerging economies, Russia.

Even if the Lugovoi extradition was a priority, Britain in the eyes of its citizens and in the eyes of its Western partners is the victim of a "hostile" Russia and so is painted white; it does not need anything more than that.

Russia fails to bury its dead; Red Army soldiers stored in a garage

It can be tough to fight for a just memory of the Red Army's fallen soldiers in Estonia, Poland and other countries when you cannot assure an appropriate burial for the soldiers in your own country. In Russia's western-most region of Kaliningrad 45 bodies of Red Army soldiers are being stored in a garage of a volunteer digger for two years now, as the regional government continuously puts off their burial.

As local web-portal Kalinirgrad.ru reports, the head of the digger group "Consciousness" Andrei Klimenko is one of many who are voluntarily searching for the millions of Soviet and German soldiers buried in the forests, rivers and lakes of Russia. According to Mr. Klimenko appropriate laws exist and even financing is plenty, but for some strange reason the local bureaucracy does not get its hands to the job.

But even when they do, like on June 22 of this year (the anniversary of Nazi attack on the Soviet Union) they do it carelessly. On June 22, 95 Red Army soldiers were buried with all appropriate honors, yet according to Mr. Klimenko some of them were Italian soldiers found near Strelna; they were in Italian military uniforms who ended up being buried as Red Army soldiers. But complaining was useless.

Recently nine bodies of Red Army soldiers were found by the diggers during a reconstruction of a theater in Kaliningrad; they were exhumed and buried appropriately, but the three bodies lying underneath a nearby statue of German poet Schiller were left alone. The diggers had no opportunity to identify them and feared that those bodies would follow the fate of the 45 bodies lying in Mr. Klimenko's garage, completely unwanted by local authorities. In the relatively small Kaliningrad region alone 150,000 soldiers fell, of those only 120,000 have been found.

If a war is indeed not over until the last victim is buried, the war for Russia will spread out over decades. But time is running out; Russia's newer generation is not far from placing the Great Patriotic War into the history books as just another event with little significance for the future; a truly saddening perspective.

Test yourself in "new" Russian history

There have been many comments about the recent initiative of Russian president Vladimir Putin to "rewrite" Russian history. If you ever were curious of what would be written in the newly adopted (or as they are referred to "recommended") history texts (one of them is pictured), Kommersant's Vlast weekly magazine offers a test to check your knowledge (in Russian). Having taken the test, I am proud to have gotten 2 out of 8 answers correct, which hopefully implies I have some objectivity remaining in my knowledge. Below are some of the questions and the surprising answers:

1) Complete the phrase: the Soviet Union was ______:

Answer: an example and a guide of a just state for millions of people all over the world

(My answer was the SU was a social state, and etc. etc. - I was wrong)

2) Complete the phrase: The result of Stalin's repressions was _______:

Answer: the formation of a new administrative class that was adequate for the goal of modernization at a time of limited resources

(My answer was that the repressions shattered the ability of the SU to defend itself resulting in devastating losses in 1941 - wrong yet again)

3) Complete the phrase: The YUKOS trial buried all hopes of _______:

Answer: oligarchs to maintain their control over Russia's natural resources

(No surprise here)

4) Multiple choice: A sovereign state requires:

Answer: the ability to independently produce military armament

(My answer: the ability to carry out internal and external foreign policy independently - Wrong again)

In the end this "new" history is probably better than studying the History of Marxism or the History of the Communist party, but it is getting closer every year.

Russian military throws a giant open-air party for draftees

Perhaps the Russian military personnel in charge of the dreaded draft are getting their act together. The military commissioner of Bashkortostan together with the city of Ufa's popular club Pravda for the second time now organized a giant open-air Ibiza-style clubbing event with a slight military touch.

As reported on Russian NTV television channel (video available here in Russian) the event included very cute dancers doing what they do best on Russian tanks and other military vehicles. One of Russia's most popular dj-s DJ Groove was in charge of music. Fireworks and massive foam-making machines were also major attractions of the event.

As the military commissioner Timofey Azarov said in an interview "we must communicate with the younger generation in their language. This is why we are hosting the event for the second time. The area in front of the draft station will be turned into a giant dancefloor for the whole night. Hyped dj-s will be hosting the event and the highlight of the night will be 1500 cubic meters of foam which will cover the guests. Patriotic songs will also be played, and guests will see a demonstration of military skills as well as new military equipment on the big screen."

The draftsmen claim the event has had a very positive effect on the attitude of young men toward military service. Last year in the city of Ufa eight thousand men were drafted and only 300 were avoiding service (for various reasons); this is the opposite of what usually happens. Even avoiding statistics this is probably the smartest idea to date coming from the Russian military draft unit, which is in dire shape (Sean's Russia Blog goes deeper on this topic); at least some of them appear to be doing their job effectively. More pics are below.

Berezovsky's lawyer says he "does not give a damn" about client

The lawyer appointed to Russian business tycoon Boris Berezovsky (pictured), after the latter decided to boycott his trial, has said in an interview with Russian daily Izvestia that he "does not give a damn" about the trial.

Boris Berezovsky is being charged in absentia with embezzling 214 million rubles from Russian air carrier Aeroflot at some point in the 1990-s and could face up to 10 years in prison. Mr. Berezovsky told his personal lawyers not to defend him and not to have anything to do with the trial which he terms as politicized.

The Russian government thus appointed Mr. Dudkov, 62 years of age, as a free lawyer for Mr. Berezovsky, who was granted political asylum in London a few years back. In his interview, Mr. Dudkov stated that the court appoints a lawyer closest to the proceedings, and Mr. Dudkov just happened to be nearby. He was surprised that a free lawyer was appointed for economic proceedings, as usually such an appointment is made for poor people and even "bums".

When asked about the likelihood of winning the trial, Mr. Dudkov referring to it as a Soviet-style proceeding laughed and said it "was impossible", although he quickly said he had not even read the trial material.

So yet another comical page is added to the history book of the Russian rule of law. It is strange then when Russian officials complain about Britain's recent remarks of a flawed Russian legal system.

Britain and Russia drift further apart over Lugovoi

The row over the Litvinenko poisoning between Russia and the UK seems to be escalating very rapidly this week. Such haste is rather strange since no real developments have happened in the case since Andrei Lugovoi's (pictures) notorious press-conference (the main suspect in the case according to UK authorities) in Moscow more than a month ago. The Guardian reports:

The Foreign Office and Downing Street are preparing to send a strong signal to the Kremlin following its refusal to extradite Andrei Lugovoi, the former KGB agent suspected of murdering Alexander Litvinenko last November.

The government was last night considering counter-measures to show Britain's extreme displeasure at the Kremlin's decision, and the seriousness with which it takes the "terrible" murder of Mr Litvinenko - a British citizen and fierce critic of the Russian president, Vladimir Putin. The options include the possible expulsion of Russian diplomats from the London embassy, and the withdrawal of cooperation in several areas, including education, trade, social affairs and counter-terrorism.

Although the Russian government officially announced the refusal to extradite Mr. Lugovoi last Monday, Moscow's stance was not new, and no real doubts existed about it since Britain asked for the extradition a few months ago. The Russian side has three motivations behind its actions.

First, extradition of its citizens is barred by its constitution. Second, it has so far seen no evidence in British documents that make Mr. Lugovoi a suspect in the case; if it does, it promises to try him at home. But third, and most important, is Russia's counter-action to Britain's refusal to extradite Boris Berezovsky (the notorious Russian tycoon, who is plotting to set up a coup in the Kremlin) and Ahmed Zakaev (a spokesman for the Chechen terrorists); both were friends of Alexander Litvinenko, and Russia has deep suspicion of their involvement in the affair.

Many analysts have pointed out to Russia's obligation to extradite Mr. Lugovoi, thus overriding the Russian constitutional ban, based on its signing of the 1957 European convention on extraditions, which according to some overrides domestic laws. Yet Kommersant has interviewed a number of experts in the field with differing opinion. One of these experts, a law professor at Russian RUDN university claims that the suspect must be deemed guilty in both countries for the extradition to occur. Another expert, senator Mikhail Margelov says that Russia has already faced criticism for ignoring its constitution from the European Human Rights court for extraditing its citizen to Turkmenistan several years ago.

Britain is fully aware that Russia will never extradite Mr. Lugovoi, just like Russia has come to terms with the fact that Mr. Berezovsky and Mr. Zakaev will never leave the UK. British authorities are in a difficult position. The new government is forced to take action to prove its tough stance with Russia and its commitment to solving the Hollywood-like riddle in which many Londoners were affected.

Britain's actions are limited; Russian energy companies toward which economic sanctions may be applied will always find alternative markets in Europe or Asia. BP and Royal Dutch Shell on the other hand are having trouble holding on to their assets in Russia, and are grateful for anything that is left to them by the Russian regulatory agencies. The only real threat is a full blockade for Russian companies into the UK financial market, which will also impact London as a financial center, where Russian IPOs account for a quarter of new equity raised.

The situation will only get worse. Talk of a break in diplomatic relations is too unrealistic and even excessive. But it is obvious that any future cooperation will be chilly. If the affair over Litvinenko was a provocation of some sort (it is hard to explain any other scenario) it has worked perfectly. Both sides now have little area for maneuver, and Russia's reputation on the international arena has been dealt a very powerful blow.