Strongman (37 page)

The summit achieved its goals – but in a surprisingly unspectacular way. There was none of the euphoria (or tension) that used to accompany East–West summitry during the Cold War.
Obamamania just did not infiltrate Russia. The student audience for his major public speech looked rather bored.

Gradually, though, the reset began to bear fruit – including a marked shift in Russia’s stance towards Iran. Since joining the six-nation Iran group in 2005, Russia had consistently
argued that while it, too, opposed the proliferation of nuclear weapons, it did not believe that Iran was trying to build them or could build them in the near future. It defended its right to help
Iran develop a civil nuclear programme, and was reluctant to support sanctions. But at their first meeting in London in April 2009, Obama was astonished when Medvedev admitted that the Americans
had ‘probably been more right’ than the Russians when it came to assessing Iran’s ballistic missile threat.

In September the Americans had a unique chance to prove they were right about Iran’s nuclear ambitions too. The presidents were due to meet at the United Nations in New York. Just before
the meeting, Obama’s national security adviser, General James Jones, called his Russian opposite number, Sergei Prikhodko, and told him they needed to meet urgently. In a room at the Waldorf
Astoria hotel, Jones showed Prikhodko spy photographs of a secret uranium enrichment plant that the Iranians were building near the holy city of Qom. Prikhodko admitted in an interview: ‘This
was not the nicest surprise we could have got.’
³
Jones says the Russian was shocked and kept shaking his head, saying, ‘This is bad, really
bad ...’
⁴

Foreign minister Lavrov couldn’t believe what he was seeing. He took Michael McFaul aside and said: ‘Why didn’t you tell us before, Mike?’

McFaul replied: ‘Well ... we thought you knew. I mean, these are
your
guys, not ours!’

Obama and Medvedev then met to discuss the news, and Medvedev’s reaction at a press conference generated positive headlines in Western countries, as for the first time he stated that
‘sanctions rarely lead to productive results, but in some cases the use of sanctions is inevitable’. It was only two days later, when news of the Qom facility was revealed to the world
at a G20 summit in Pittsburgh, that the reason for Medvedev’s change of attitude could be guessed at. For the first time, Russia and the West now started to work more closely on Iran. The
following June, Moscow would back new UN sanctions, and in September even cancel the sale of an S-300 air defence system to Iran, losing a billion-dollar contract.

Negotiations on New Start, meanwhile, began on a permanent basis in Geneva. Two sticking points quickly became evident. One was the exchange of what was known as ‘telemetric
information’ – sharing data about missile tests and launches. The second was ‘unique identifiers’ – essentially, bar-coding every missile so they could all be
accounted for and tracked.

Both Obama and Medvedev became deeply involved in the process, hammering out all the most important details in telephone calls and face-to-face meetings. Medvedev joked later that
‘telemetry’ had become his favourite English word.

One of their meetings took place in December in Copenhagen, where both leaders were attending climate-change talks. With every venue in the city apparently taken up with global warming
discussions, Obama and Medvedev found themselves in a makeshift meeting-room in a curtained-off area of a women’s dress shop, surrounded by naked mannequins. It proved to be a conducive
atmosphere. Obama explained the concept of unique identifiers: ‘Look, we just put these barcodes on the missiles, so we can count them. That’s what the treaty’s all about, after
all.’

Russia’s negotiators had been resisting this, insisting that ‘if we sign a treaty, we fulfil it’ and that it should not be assumed they would cheat. But Medvedev saw the sense
of it. ‘OK,’ he said, ‘so long as it’s done in a fair way. That you do it and we do it, and we do it in a symmetrical way.’

The breakthrough was followed by one on telemetry, and it seemed agreement was close. In January General Jones called Obama from Moscow airport after talks that seemed to clinch the deal.

But there was a hitch. The Americans had been assuming that the Russians agreed that the strategic arms treaty would stand alone, with no reference to missile defence. But now Obama’s
replacement for the Bush missile shield was beginning to take shape, and the Russians did not like it. Instead of a radar in the Czech Republic and interceptors in Poland, Obama was developing what
he called a ‘Phased Adaptive Approach’, which in many ways might pose even more of a potential threat to Russia. It would involve highly mobile sea-based missiles and radars, and
short-range missiles based in Eastern Europe. On 4 February 2010 it was announced that those missiles would be located in Romania. It seemed to cause a hardening of attitudes in Moscow, where they
realised they were about to agree a treaty that would considerably reduce Russia’s strategic arsenal, while the Americans were building a fence right on their border.

On 24 February the hot line between the Kremlin and the White House glowed red for almost an hour and a half. Medvedev was again trying to couple the arms cuts with legally binding missile
defence restrictions – within the new treaty. Obama was angry. ‘We’d agreed, Dmitry! If the conditions for the treaty are this, then we’re not going to have a treaty.’
Obama was also angry with his staff, who had led him to believe the deal was all but done. In fact, his negotiators had done him a bad service by letting the Russians think they could insert a
condition in the treaty that would freeze missile defence systems as they currently stood.

It took three more weeks of intense negotiation in Geneva and Moscow, and another Medvedev–Obama phone call on 13 March, to settle the deal. The New Start treaty was finally signed in
Prague on 8 April. It dealt only with arms reductions, as the Americans wished, while both sides appended unilateral statements regarding missile defence. The Americans stated that US missile
defence systems were not intended to affect the strategic balance with Russia. But the Russian statement invoked the right to withdraw from the treaty should it deem a future American build-up of
missile defence capabilities to be a threat to its own strategic nuclear potential. The Russians thereby achieved some kind of linkage, as they had wanted: if at any point they decide that the US
missile shield has become too strong, they can leave the treaty and build up their own nuclear forces.

iMedvedev

So far, internationally, President Medvedev had acted in much the same way as one would have expected Vladimir Putin to have acted. It did not go unnoticed that as prime
minister, Putin continued to express his opinions on foreign affairs and even to make trips to other countries. It was he, for example, who publicly stated that missile defence was in fact an
obstacle to the search for a strategic arms agreement – just weeks before Medvedev infuriated Obama by repeating the same thought.

Medvedev’s views on defending Russia’s interests, and being treated as an equal partner, were identical to his mentor’s. Even the rapprochement with the West over Iran did not
signify a strategic shift: for a variety of reasons – commercial, political and strategic – Moscow was never going to risk making an enemy of Tehran.

Medvedev, as we shall see in the next chapter, was slowly changing the agenda at home but struggling to make an impact. The same was true of his early foreign overtures. His keynote speeches in
Berlin and Evian had flopped. But now that the ice was broken with President Obama, he spotted a way, perhaps, to boost his image at home and abroad. Since ‘modernisation’ was his
watchword in domestic politics, it made sense for him to be seen hobnobbing with a modern American president. It wasn’t enough just to own an iPad and record video-blogs for his website. He
needed to get out West and visit Silicon Valley. He was never going to compete with Putin’s Action Man holiday stunts, but he could try to look cool in the company of Barack Obama and Arnold
Schwarzenegger. Or would he just look puny? That was the problem.

A couple of months after the Prague treaty was signed, Medvedev set off on his first state visit to the United States. He did everything a modernising president should do. He opened a Twitter
account, visited Cisco and Apple and Stanford University, met Russian émigrés working in Silicon Valley, then flew to Washington for talks with congressmen and an impromptu
shirt-sleeves lunch with Obama at Ray’s Hell Burger joint. They discussed whether jalapenos were better than pickles, but what Barack did not tell Dmitry over lunch was that the FBI had just
uncovered a nest of Russian spies. That only emerged after Medvedev was back in Moscow, and a grand spy swap was executed at Vienna airport, in true Cold War style, on 9 July. Ten Russian
‘sleeper’ agents, including the glamorous and instantly celebrated Anna Chapman, were exchanged for four Americans who had been jailed in Russia, accused of espionage.

The incident did more than remind everyone that espionage is still a thriving business. It also involuntarily brought to mind the spymaster who was President Medvedev’s patron and now his
prime minister. Putin welcomed the spies home as heroes – notwithstanding the fact that they had, in fact, proved to be almost useless during their many years as ‘sleepers’, with
fake identities and jobs in the United States. They had failed to penetrate any worthwhile institution and allowed themselves to be caught doing the most basic of espionage tricks. But
Putin’s loyalty to his profession is unequivocal, and he fell comfortably into his role as godfather of Russia’s spies. A week or so after the agents’ return, Putin organised a
morale-boosting meeting with them, where they sang patriotic Soviet songs and he promised them ‘an interesting, bright future’ working in ‘worthy places’. He also promised
retribution for the traitor who exposed them to the Americans: ‘This was the result of treason, and traitors always end badly. They finish up as drunks, addicts, on the street.’

One of the songs they sang together was ‘Where Does the Motherland Begin?’, from a 1968 film,
The Sword and the Shield
, about a Soviet spy working in Nazi Germany. Putin also
played it on the piano, with two fingers, at a charity event in December. It’s clearly a favourite – sentimental and patriotic ...

12

Weathering the global financial crisis

Vladimir Putin once remarked that he was ‘tired of foreign policy’ and glad to be prime minister rather than president. But in September 2008, just four months into
the new job, he had to deal with an economic and financial crisis for which he was ill prepared. Eight years earlier he had received intensive tuition in economics from his team of bright young
reformers. But little in Putin’s experience prepared him for the tornado that was about to hit his country.

Immediately prior to the global financial crash, things were looking good. Buoyed by record-high oil prices, the Russian economy had grown by an average of 7 per cent a year between 1999 and
2008. The Stabilisation Fund, set up to provide a cushion if oil prices should drop, was huge, and had been split into a Reserve Fund, with $140 billion, and a National Welfare Fund, with $30
billion, the latter mainly earmarked to solve the looming pension crisis. Only in February 2008 Putin had been boasting that ‘the main thing we have achieved is stability’. But Russian
business had borrowed heavily from Western banks, and those were about to start crashing.

Luckily Putin still had his team of experts, who had watched America’s subprime crisis gathering, and were only too aware that the tsunami would soon engulf Russia. The day after Lehman
Brothers went bankrupt on 15 September, Putin’s economics team gathered at the office of his deputy prime minister, Igor Shuvalov. They included President Medvedev’s economic adviser,
Arkady Dvorkovich, and the finance minister, Alexei Kudrin, who would later be named ‘Finance Minister of the Year’ by
Euromoney
magazine. ‘When we realised that everyone
in the market could go bankrupt overnight, we knew we had to do something,’ he recalls. ‘We came up with a plan to provide a line of credit for 295 businesses. They’d get special
rights to credit from banks.’
¹
Those 295 companies represented 80 per cent of the country’s income.

The plan was to offer loans through two state-owned banks, Vneshekonombank and Sberbank. The latter was headed by the architect of Putin’s early reforms, German Gref. He was hesitant:
‘I said that I was willing to do this but only with state guarantees, because I had the money of our shareholders. I had to answer to them if the risks were too high.’
²

The team came up with a scheme whereby the Central Bank would guarantee the loans. ‘We spent two days and nights here in Sberbank,’ Gref recalls. ‘We sifted through all the
papers working out who owed what to whom. My staff didn’t sleep for two days.’

In the end the Central Bank spent about $200 billion, about a third of its cash reserves, keeping the economy afloat. Most of this was used to recapitalise banks, buy up plunging shares and
support the declining rouble. $50 billion was disbursed to the 295 key businesses, so that they could repay hard currency loans from foreign lenders. The beneficiaries included private oligarchs
such as Oleg Deripaska ($4.5 billion) and Roman Abramovich ($1.8 billion), but also state companies such as Rosneft ($4.6 billion) and Russian Technologies ($7 billion). At 13 per cent of GDP, it
was the biggest bail-out package in the G8, dwarfing even the huge US stimulus package of $787 billion or 5.5 per cent of US GDP.