The U.S.-Russia Divide Widens Again

When Presidents Vladimir Putin and George W. Bush first met in June 2001, their greatest common challenge lay in managing the power disparity between the two countries.

Bush needed to persuade Putin that U.S. plans to scrap the Anti-Ballistic Missile (ABM) Treaty, initiate a missile-defense program and support NATO expansion into the territory of the former Soviet Union need not harm U.S.-Russian relations.

Putin needed to convince the Russian people that his inability to win anything in return for concessions did not mean their country had become a second-rate power. Putin swallowed the pill, and the two presidents seemed to develop an excellent rapport.

Three months later, the 9/11 attacks brought the White House and Kremlin together to face a common terrorist enemy, and their strategic cooperation reached a high point. But the U.S.-Russian relationship has steadily deteriorated over the past three years. Since January, that process has accelerated.

In part, this is because rising oil prices have brought Russia - the world's No. 2 oil exporter and its leading gas supplier - windfall profits and new self-confidence. Putin can now assure his people that Russia is once again a force that the world's most powerful nations (including the United States) must reckon with.

A list of grievances between the two states is growing, and the newly self-confident Kremlin is in no mood to back down. First, it has made clear it will not support a tough U.S. approach to Iran's nuclear program. Just as the issue reached the U.N. Security Council in early March, Russian Foreign Minister Sergei Lavrov briefly floated a plan to allow Iran limited uranium enrichment, which would slow the country's nuclear progress but allow it to eventually develop a fuel cycle.

Washington, unpleasantly surprised by the proposal, quickly shot it down. But the damage was done. Moscow had signaled it can live with a nuclear Iran, directly undermining the U.S. negotiating position. Russia would prefer that Iran not have nuclear weapons - just as China would like North Korea to dismantle its nuclear program. But Putin's government has made clear it will not ignore Russia's considerable commercial interests to help Washington block Iran's plans - particularly since Tehran may eventually succeed anyway.

Russia is Iran's primary supplier of conventional arms, and if the Islamic Republic goes nuclear, Russian companies will likely win contracts to build new reactors there, just as they are now finishing work on the $1.2 billion reactor at Bushehr. Finally, while many states fear the unfolding conflict will add upward pressure on already high energy prices, Russia is earning revenue from them.

In January, Moscow exacerbated another area of tension with Washington by shutting off gas supplies to Ukraine, in hopes of squeezing that country's pro-Western government.

This was not the first time Moscow and Washington squared off over the former Soviet republic. In the fall of 2004, Putin tried to help the Russia-friendly Viktor Yanukovych steal a presidential election there in a rigged election. The United States and European Union quickly stepped in to help his opponent, Viktor Yushchenko, earn a do-over vote. Yushchenko and his reform-minded orange revolutionaries won the second balloting, and Putin was publicly humiliated. But in last month's parliamentary elections, Yanukovych's party returned to win a plurality of the vote, and Ukraine is again a serious irritant in U.S.-Russian relations.

Speaking of illegitimate elections in former Soviet states, Belarusian President Alexander Lukashenko won a landslide re-election in March. The Kremlin lauded the result. The United States and European Union denounced it as fraudulent. Belarus, which Bush administration officials call an "outpost of tyranny," remains more closely allied with (and dependent on) Russia than is any other former Soviet state. There is little chance the country will see a Ukraine-style popular revolution anytime soon, but the imposition of U.S. and E.U. sanctions on the Belarusian leadership and Putin's willingness to ignore Lukashenko's brutal treatment of protesters will further strain Washington's relations with Moscow.

To make matters worse, the authors of a Pentagon study reported in March that Russian intelligence agencies shared U.S. military plans with Saddam Hussein prior to the U.S. invasion of Iraq. U.S. plans were not seriously compromised; much of the information was wrong. The Kremlin may not even have known what its spies were up to. But the Pentagon criticism demonstrates how badly the bilateral relationship has been damaged since Bush first looked Putin in the eye and "got a sense of his soul" in 2001.

In addition, U.S. investment in Russia may soon take a hit. We learned in March that Bill Browder, CEO of Hermitage Capital Management, was denied entry to Russia last November because authorities claimed he threatened the country's security. Hermitage, the world's largest foreign investor in Russian companies, has made enemies in high places by using Moscow's courts to uncover corrupt Russian business practices.

The episode suggests the Kremlin may now be less interested in courting foreign investors than in protecting powerful Russian businessmen, whatever the fallout abroad. Portfolio investors need not be overly worried, but foreign direct investors now have cause for concern.

In sum, Russia's new petro-wealth and Putin's domestic popularity have allowed the Kremlin to pursue a more assertive foreign policy. Bush's sagging political fortunes and growing European dependence on Russian energy help Putin brush aside Western criticism. Washington and Moscow continue to share valuable counterterrorist intelligence, because each has a compelling interest in doing so. But broader bilateral initiatives - development of the NATO-Russia Council, the two countries' energy dialogue and enhanced economic cooperation - no longer enjoy strong support within either the Kremlin or the White House.

The Bush administration is also concerned that Russia may be growing its strategic relationship with China. Kremlin suspicion of Chinese intentions remains strong, but Russian officials now believe they have the leverage to hold their own with Chinese negotiators. Their latest strategic energy deal, agreed during Putin's March visit to Beijing, is the broadest yet. While there is usually less to these agreements than meets the eye (implementation will remain slow and details have yet to be worked out), enough momentum has now been generated to take their growing energy relationship seriously. China's gain will likely be Washington's and Japan's loss.

It seems increasingly clear that Putin will step down when his second term ends in 2008. But his influence will remain. He will likely take a senior post in or around government, possibly as chairman of Gazprom, Russia's gas monopoly. Russia's next president, who will probably remain beholden to both Putin and the men who refused Bill Browder entry to the country, is unlikely to enjoy the warm relations with the next U.S. president that Putin and Bush seemed to have developed during their first meeting nearly five years ago. The power disparity just isn't what it used to be.