Eyeing ‘Axis of Evil,’ Russia Sees Bottom Line

The more U.S. officials press Russia to abandon deals with Iran, Iraq and North Korea, the closer Moscow’s relations appear to become with the nations President Bush calls the “axis of evil.”

Russia has plans for a $40-billion trade deal with Iraq and more nuclear reactor sales to Iran and is pushing a project to link the Trans-Siberian Railroad with lines belonging to North Korea.

Whenever Russia cozies up to these states, U.S. officials like to point out that losing American goodwill can be expensive. A good relationship with the United States would be worth a lot more financially to Russia than whatever Iran, Iraq or North Korea can offer, they argue.

Many observers speculate that Russia’s cooperation with the three countries has a political edge, designed to prod America and enable Moscow to compete for global influence.

But one motivation may be more fiscal than political. Russian President Vladimir V. Putin is pursuing a more muscular and pragmatic direction in Russian foreign relations--one in which the bottom line is economic.

“It has become clear in Russia that America thinks first and foremost about pursuing its own economic and political interests. And Russia, following suit, is starting to profess the same policies,” said Alexander A. Konovalov, head of the Institute for Strategic Assessment, a Moscow think tank.

“Russia has long had relations with all three states.... And it would be stupid if Russia all of a sudden decided to sever all business contacts with these three countries just as a concession to Washington,” Konovalov said. “Russia cannot afford to make such an expensive gift.”

Russian analysts point to neighboring Ukraine, which under U.S. pressure dumped a $45-million deal to supply turbines to a nuclear power station in Iran four years ago.

Russia made the deal instead, and the power plant, in Bushehr on the west coast of Iran, is now nearly complete. Russia has floated draft plans to supply a total of six nuclear reactors to Iran, despite intense U.S. opposition.

“Russia remembers very well the time when Ukraine pulled out of the Bushehr project in exchange for American promises to invest money in Ukraine’s economy,” said Anton Khlopkov, an analyst with the Center for Policy Studies in Russia, a Moscow-based think tank.

“The U.S. never delivered, and now Ukraine is kicking itself for having dropped out. Today, Ukraine is trying to restore ties with Iran,” Khlopkov said. “Naturally, Russia does not want to find itself in that situation.”

Russia is Iraq’s biggest trade partner, followed by France and Egypt.

U.S. De-Emphasis

At the White House, one official sought to play down the threat posed to U.S.-Russian relations by the planned business deals.

He said that although the United States has registered its objections to the Russian plans to build more nuclear reactors for Iran, U.S. officials don’t believe that the Iraq trade deal will amount to much and don’t see anything necessarily wrong with the Russian-North Korean railroad plans.

On the issue of North Korea, the U.S. official said that although the North has been “politically isolated,” the country has long had business contacts with the Russians that the United States has not found objectionable. North and South Korea have agreed on a joint railroad venture, and the U.S. official noted that the United States also plans talks with the North Koreans about possible joint projects.

The official, who asked to remain unidentified, said the discussed plans for a deal with Iraq amount to “kind of a phony agreement. Nobody expects anything to come of them.” He added that the U.S. simply wants the Russians to observe the terms of U.N. sanctions on Iraq.

Like the U.S. official, Russian analysts are skeptical of the $40-billion deal, which Moscow insists wouldn’t breach U.N. sanctions against Iraq imposed after its 1990 invasion of Kuwait.

“There is a strong suspicion that Saddam Hussein will not pay Russia anything. All this talk about $40 billion is nothing but hot air,” Konovalov said. “It is merely an Iraqi propaganda gimmick.”

Still, U.S. Defense Secretary Donald H. Rumsfeld has objected to Russia’s ties to the countries, warning that investors would shy away from Russia if it made deals with nations such as Iraq.

“To the extent that Russia decides that it wants to parade its relationships with countries like Iraq and Libya and Syria and Cuba and North Korea, it sends a message out across the globe that that is what Russia thinks is a good thing to do, to deal with the terrorist states,” Rumsfeld said. “It’s almost like self-executing.”

In response, Russian Foreign Ministry spokesman Boris Malakhov warned against mixing U.S. foreign policy with the interests of investors.

“Mixing ideology with economic ties is a thing of the past, which was characteristic of the Cold War that Russia and the United States worked to end,” he said.

Most Russian observers agree that Russia’s cooperation with Iran, Iraq and North Korea irritates but doesn’t threaten its relations with America.

In the last 12 months, Putin has made several momentous concessions to the United States: accepting U.S. troops in former Soviet Central Asian states during the Afghanistan campaign; abandoning Russia’s fierce opposition to Washington’s decision to opt out of the Antiballistic Missile Treaty and develop a national missile defense shield; and softening its stance on expansion of the North Atlantic Treaty Organization.

Putin’s pro-U.S. stance, which rankles many bureaucrats in the Russian military, intelligence and foreign service sectors, has so far appeared to pay few dividends for him. America has offered little in return, but Putin is hoping for future U.S. support to help his country join the World Trade Organization and become more fully integrated into the global economy.

Despite Putin’s willingness to shift ground on strategic weapons treaties that were once immutable, he has refused to budge in the face of U.S. pressure over trade with countries America seeks to isolate.

Russia’s trade with the three states isn’t new. After the fall of the Soviet Union more than a decade ago, then-President Boris N. Yeltsin enthusiastically embraced America and the West, but as NATO’s 1999 expansion loomed, he became wary and distrustful.

He fired his pro-Western foreign minister, Andrei V. Kozyrev, in 1996 and replaced him with the pragmatic Middle East specialist Yevgeny M. Primakov, who later became prime minister.

Primakov was the architect of the policy to reinvigorate ties with Arab countries and Iran, Iraq and North Korea.

Like Yeltsin, Putin has made an effort to cultivate powerful European allies France, Germany and Britain, at times trying to split the United States and Europe on matters such as Iraq policy--for example, cooperating with France in early 2001 to campaign for a suspension of sanctions.

“Russia’s policies have become more pragmatic,” Khlopkov said. “Today, the Putin administration calculates how much Russia may lose through canceled contracts with the U.S. that would follow from its decision to develop ties with, say, Iran.”

Of the three states, Iran is the most promising for Russia, with the first stage of the Bushehr nuclear power plant alone worth $800 million to Moscow. A recent draft Russian policy on trade sketched out a plan to build five more reactors over the next 10 years, which could be worth about $6 billion.

Russia insists that its dealings with Iran will not enable Tehran to develop nuclear weapons. U.S. officials, however, are convinced that Russia has handed over sensitive technology that could be used to do that.

Economically speaking, Iraq and North Korea are less encouraging prospects. North Korea’s command economy is in dire straits, and Iraq is subject to U.N. sanctions. The latter owes Russia $7 billion in Soviet-era debt, or about $12 billion in today’s terms.

“There are very few economic benefits in Russia-North Korea relations,” Konovalov said.

To underscore North Korea’s limited potential, one need only look to an announcement that came out of a recent meeting between Putin and North Korean leader Kim Jong Il: North Korea had bought 260 Russian tractors, not the stuff of a vigorously pumping trade partnership. Bilateral trade amounts to only $100 million.

“We are supplying some equipment that cannot be called modern, let alone offensive, to North Korea,” Russian Defense Minister Sergei B. Ivanov said last week.

As for Iraq, Russian oil companies have large interests in the country’s oil, which accounts for 35% of Iraq’s U.N.-approved oil for export.

‘Regime Change’ Fear

Despite Moscow’s disillusionment with Hussein’s regime, Russia fears that if he is toppled, U.S. and British oil companies will rush into Iraq, pushing Russian companies out.

Russia sees Bush’s determination to topple Hussein as an eagerness to let U.S. companies control the oil and gas industry in Iraq.

“It’s doubtful whether Russia can continue as the biggest economic partner of Iraq if the regime is replaced,” Khlopkov said.

While Baghdad is under U.N. sanctions, Russia can neither expand its trade nor hope for the return of Iraq’s debt to the Soviet Union.

Some analysts see the planned deal with Baghdad as Putin’s way of mollifying the anti-U.S. elements in the military and bureaucracy here. But Foreign Ministry spokesman Malakhov insisted that the deal would pay off for Russia.

“We are preparing a long-term economic cooperation program with Iraq,” Malakhov said. “And if Russian business goes along, it means there are direct interests and direct benefits.”

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Times staff writer Paul Richter in Washington contributed to this report.