Russian Political, Economic, and Security Issues and U.S. Interests

Russian Political, Economic, and
Security Issues and U.S. Interests
Updated October 6, 2008
Stuart D. Goldman
Specialist in Russian and Eurasian Affairs
Foreign Affairs, Defense, and Trade Division

Russian Political, Economic, and Security Issues
and U.S. Interests
Dmitry Medvedev, Putin’s chosen successor and long-time protege, was elected
President of the Russian Federation on March 2, 2008 with about 70% of the vote.
Medvedev, formerly First Deputy Prime Minister, announced during the campaign
that if elected, he would propose Putin as Prime Minister. Medvedev was
inaugurated as President on May 7; Putin was confirmed as Prime Minister the next
day. The Kremlin’s Unified Russia party had previously swept the parliamentary
election (December 2, 2007), winning more than two-thirds of the seats in the Duma.
U.S. and EU observers criticized both elections as unfairly controlled by the
governing authorities. Nevertheless, Putin’s widespread popularity in Russia led
many to conclude that the election results corresponded to Russian public opinion.
The economic upturn that began in 1999 is continuing. The GDP, domestic
investment, and the general living standard have been growing impressively after a
decade-long decline, fueled in large part by profits from oil and gas exports. There
is a budget surplus, and the ruble is stable. Some major problems remain: 15% of the
population live below the poverty line; foreign investment is relatively low; inflation
is rising; and crime, corruption, capital flight, and unemployment remain high.
The Russia-Georgia conflict is the most serious clash between Russia and the
United States since the end of the Cold War. Despite rising tension on issues such
as NATO enlargement, Kosovo, and proposed U.S. missile defenses in Eastern
Europe, Washington and Moscow had found some common ground on the Iranian
and North Korean nuclear concerns and on nuclear non-proliferation in general.
Russia’s actions in Georgia, however, could be a turning point in U.S.-Russian
relations. Russia’s actions also arouse anxiety in other Soviet successor states,
especially those with large Russian minorities, such as Ukraine and Kazakhstan.
Russia’s military has been in turmoil after years of severe force reductions and
budget cuts. The armed forces now number about 1.2 million, down from 4.3 million
Soviet troops in 1986. Readiness, training, morale, and discipline have suffered.
Russia’s economic revival has allowed Putin to increase defense spending. Major
weapons procurement, which virtually stopped in the 1990s, has begun to pick up.
Some high-profile activities such as multi-national military exercises, Mediterranean
and Atlantic naval deployments, and strategic bomber patrols, have resumed.
After the Soviet Union’s collapse, the United States sought a cooperative
relationship with Moscow and supplied over $14 billion to encourage democracy and
market reform, for humanitarian aid, and for WMD threat reduction in Russia. Direct
U.S. foreign aid to Russia under the Freedom Support Act fell in the past decade, due
in part to congressional pressure. U.S. aid in the form of WMD threat reduction
programs, and indirect U.S. aid through institutions such as the IMF, however, was
substantial. The United States has imposed economic sanctions on the Russian
government and on Russian organizations for exporting nuclear and military
technology and equipment to Iran and Syria. There are restrictions on aid to Russia
in the FY2008 foreign aid bill. This CRS report will be updated regularly.

Most Recent Developments..........................................1
Post-Soviet Russia and Its Significance for the United States................1
Political Developments.............................................3
Chechnya ....................................................8
Economic Developments...........................................10
Economic Reform............................................10
Foreign Policy...................................................11
Russia and the West...........................................11
Russia and the Soviet Successor States............................12
Defense Policy...................................................17
Fundamental Shakeup of the Military .............................17
Control of Nuclear Weapons....................................19
U.S. Policy......................................................19
U.S.-Russian Relations........................................19
U.S. Assistance..............................................25

Russian Political, Economic, and
Security Issues and U.S. Interests
Most Recent Developments
On April 16, Putin signed a decree authorizing direct official relations between
Russian government bodies and the secessionist authorities in Georgia’s Abkhazia
and South Ossetia. The decree also called for providing economic, social, and other
assistance to those “republics,” most of whose people already held Russian passports.
On May 7, Dmitry Medvedev was inaugurated as President of the Russian
Federation. Putin was confirmed as Prime Minister the next day.
On August 7, sporadic clashes between the forces of Georgia and its Russian-
backed breakaway region of South Ossetia escalated into large-scale combat with a
major Georgian thrust into South Ossetia that temporarily routed the separatists.
Beginning on August 8, powerful Russian forces pushed the Georgian Army out
of South Ossetia, occupied Abkhazia, and drove into Georgia’s interior. Russia’s
offensive against Georgia continued until the night of August 12-13.
On August 14, U.S. and Polish officials signed an agreement for the future
deployment of 10 U.S. anti-ballistic missile interceptors in Poland. The next day, the
Deputy Chief of the Russian General Staff warned that this “cannot go unpunished.”
On August 15, the Georgian government accepted a French-brokered cease-fire
that left Russian forces in control of South Ossetia, Abkhazia, and much indisputably
Georgian territory as well.
On August 26, President Medvedev signed a decree officially recognizing the
independence of South Ossetia and Abkhazia. This was immediately denounced by
the United States, NATO, and the European Union, among others.
Post-Soviet Russia and
Its Significance for the United States
Russia was by far the largest republic of the former Soviet Union. Its population
of 142 million (down from 149 million in 1991) is about half the old U.S.S.R. total.
Its 6.6 million square miles comprises 76.2% of the territory of the former Soviet
Union and it is nearly twice the size of the United States, stretching across Eurasia
to the Pacific, across 11 time zones. Russia also has the lion’s share of the natural
resources, industrial base, and military assets of the former Soviet Union.

Russia is a multinational, multi-ethnic state with over 100 nationalities and a
complex federal structure inherited from the Soviet period. Within the Russian
Federation are 21 republics (including Chechnya) and many other ethnic enclaves.
Ethnic Russians, comprising 80% of the population, are a dominant majority. The
next largest nationality groups are Tatars (3.8%), Ukrainians (3%), and Chuvash
(1.2%). Furthermore, in most of the republics and autonomous regions of the
Russian Federation that are the national homelands of ethnic minorities, the titular
nationality constitutes a minority of the population. Russians are a majority in many
of these enclaves. During Yeltsin’s presidency, many of the republics and regions
won greater autonomy. Only the Chechen Republic, however, tried to assert
complete independence. President Putin has reversed this trend and rebuilt the
strength of the central government vis-a-vis the regions.
The Russian Constitution combines elements of the U.S., French, and German
systems, but with an even stronger presidency. Among its more distinctive features
are the ease with which the president can dissolve the parliament and call for new
elections and the obstacles preventing parliament from dismissing the government
in a vote of no confidence. The Constitution provides a four-year term for the
president and no more than two consecutive terms. The president, with parliament’s
approval, appoints a prime minister who heads the government. The president and
prime minister appoint government ministers and other officials. The prime minister
and government are accountable to the president rather than the legislature. Dmitry
Medvedev was reelected president on March 2, 2008 and inaugurated on May 7. On
May 8, Putin was confirmed as Prime Minister.
The bicameral legislature is called the Federal Assembly. The Duma, the lower
(and more powerful) chamber, has 450 seats. In previous elections, half the seats
were chosen from single-member constituencies and half from national party lists,
with proportional representation and a minimum 5% threshold for party
representation. In May 2005, Putin’s proposal that all 450 Duma seats be filled by
party list election, with a 7% threshold for party representation, became law. In the
December 2007 parliamentary election, the pro-Kremlin United Russia Party won
315 seats, more than the two-thirds majority required to amend the constitution. The
upper chamber, the Federation Council, has 166 seats, two from each of the 83
regions and republics of the Russian Federation. Deputies are appointed by the
regional chief executive and the regional legislature.
The judiciary is the least developed of the three branches. Some of the Soviet-
era structure and practices are still in place. Criminal code reform was completed in
2001 and trial by jury is being introduced, although it is not yet the norm. The
Supreme Court is the highest appellate body. The Constitutional Court rules on the
legality and constitutionality of governmental acts and on disputes between branches
of government or federative entities. Federal judges, who serve lifetime terms, are
appointed by the President and must be approved by the Federation Council. The
courts are widely perceived to be subject to political manipulation and control.
Russia is not as central to U.S. interests as was the Soviet Union. With the
dissolution of the U.S.S.R. and Russia substantially diminished, much of the Soviet
military threat has disappeared. Yet developments in Russia are still important to the
United States. Russia remains a nuclear superpower. It will play a major role in

determining the national security environment in Europe, the Middle East, and Asia.
Russia has an important role in the future of arms control, nonproliferation of
weapons of mass destruction, and the fight against terrorism. Such issues as the war
on terrorism, the future of NATO, and the U.S. role in the world will all be affected
by developments in Russia. Also, Russia’s economy is recovering and it is a
potentially important trading partner. Russia is the only country in the world with
more natural resources than the United States, including vast oil and gas reserves.
It is the world’s second largest producer and exporter of oil (after Saudi Arabia) and
the world’s largest producer and exporter of natural gas. It has a large, well-educated
labor force and a huge scientific establishment. Also, many of Russia’s needs —
food and food processing, oil and gas extraction technology, computers,
communications, transportation, and investment capital — are in areas in which the
United States is highly competitive, although bilateral trade remains relatively low.
Political Developments
Former President Boris Yeltsin’s surprise resignation (December 31, 1999)
propelled Vladimir Putin (whom Yeltsin had plucked from obscurity in August 1999
to be his fifth Prime minister in three years) into the Kremlin as Acting President.
Putin’s meteoric rise in popularity was due to a number of factors: his tough policy
toward Chechnya; his image as a youthful, vigorous, sober, and plain-talking leader;
and massive support from state-owned TV and other mass media. In March 2000,
Putin was elected president in his own right. He won a second term four years later.
Putin, who was a Soviet KGB foreign intelligence officer for 16 years and later
headed Russia’s Federal Security Service (domestic component of the former KGB),
is an intelligent, disciplined statist. His priorities appear to be strengthening the
central government and restoring Russia’s status as a great power.
Putin won early victories over regional leaders, reclaiming authority for the
central government that Yeltsin had allowed to slip away. First, Putin created seven
super-regional districts overseen by presidential appointees. Then he pushed
legislation to change the composition of the Federation Council, the upper chamber
of parliament — a body that was comprised of the heads of the regional governments
and regional legislatures, giving those leaders exclusive control of that chamber and
also parliamentary immunity from criminal prosecution. With Putin’s changes,
Federation Council Deputies are appointed by the regional leaders and legislatures,
but once appointed, they are somewhat independent. In 2005, the Kremlin-controlled
parliament gave Putin the power to appoint (previously elected) regional governors.
Under Putin, the government took nearly total control of nation-wide broadcast
media. A key target was the media empire of Vladimir Gusinsky, which included
Russia’s only independent television network, NTV, which had been critical of Putin.
Gusinsky was arrested in June 2000 on corruption charges and was later released and
allowed to leave the country. The state-controlled gas monopoly Gazprom then took
over NTV and appointed Kremlin loyalists to run it. The government then forced the
prominent oligarch Boris Berezovsky to give up ownership of his controlling share
of the ORT TV network. TV-6, the last significant independent Moscow TV station,

was shut down under government pressure in 2002. The government has also moved
against the independent radio network, Echo Moskvuy and other electronic media.
In 2006, the Russian government forced most Russian radio stations to stop
broadcasting programs prepared by the U.S.-funded Voice of America (VOA) and
Radio Liberty (RL). Threats to revoke the stations’ broadcasting licenses forced all
but 4 or 5 of the more than 30 radio stations that had been doing so to stop
broadcasting VOA and RL programs. Journalists critical of the government have
been imprisoned, attacked, and in some cases killed, with impunity. The highly
respected journalist and Chechen war critic Anna Politkovskaya was murdered in
October 2006.
In the summer of 2003, the Russian government launched a campaign against
Mikhail Khodorkovski, CEO of Yukos, then the world’s fourth largest oil company.
Khodorkovski, then the wealthiest man in Russia, had become a multi-billionaire in
the 1990s in the course of the often corrupt privatization of state-owned assets under
former president Yeltsin. Khodorkovski, however, subsequently won respect in the
West by adopting open and “transparent” business practices while transforming
Yukos into a major global energy company. Khodorkovski criticized some of Putin’s
actions, financed anti-Putin political parties, and hinted that he might enter politics
in the future. After numerous searches and seizures of Yukos records and the arrest
of senior Yukos officials, police arrested Khodorkovski in October 2003.
Prosecutors then froze Yukos stock worth some $12 billion.
Khodorkovski’s arrest was seen by many as politically motivated, aimed at
eliminating a political enemy and making an example of him to other Russian
tycoons. Many observers also saw this episode as the denouement of a long power
struggle between two Kremlin factions: a business-oriented group of former Yeltsin
loyalists and a group of Putin loyalists drawn mainly from the security services and
Putin’s home town of St. Petersburg. A few days after Khodorkovski’s arrest,
Presidential Chief of Staff Aleksandr Voloshin, reputed head of the Yeltsin-era
group, resigned, as did several of his close associates, leaving the Kremlin in the
hands of “the policemen.” Khodorkovski went on trial in June 2004 on multiple
criminal charges of tax evasion and fraud. In May 2005, he was found guilty,
sentenced to nine years in prison, and later sent to a penal camp in Siberia.
Yukos was broken up and its principal assets sold off to satisfy tax debts
allegedly totaling $28 billion. Yuganskneftegaz, the main oil production subsidiary
of Yukos, was sold at a state-run auction, ostensibly to satisfy tax debts. The wining,
and sole, bidder, Baikalfinansgrup, paid $9.7 billion, about half of its market value,
according to western specialists. The previously unheard-of Baikalfinansgrup is a
group of Kremlin insiders headed by Igor Sechin, Deputy Head of the Presidential
Administration and a close Putin associate. Baikalfinansgrup was soon purchased
by Rosneft, a wholly state-owned Russian oil company. Sechin is Chairman of
Rosneft’s Board of Directors. The de-facto nationalization of Yuganskneftegaz was
denounced by Andrei Illarionov, then a senior Putin economic advisor, as “the scam
of the year.” Since then, the government has re-nationalized or otherwise brought
under its control a number of other large enterprises that it characterizes as “strategic
assets.” These include ship, aircraft, and auto manufacturing, as well as other raw
material extraction activities. At the same time, the Kremlin has installed senior
officials to head these enterprises. For example, former First Deputy Prime Minister

Dmitry Medvedev (now president) was the Chairman of the Board of Gazprom,
Russia’s giant natural gas monopoly. Sergei Ivanov, another First Deputy Prime
Minister and close Putin confidant, is the Chairman of the Board of Autovaz,
Russia’s largest auto manufacturer. This phenomenon of political elites taking the
helm of many of Russia’s leading economic enterprises has led some observers to
conclude that “those who rule Russia, own Russia.”
On September 13, 2004, in the aftermath of the bloody Beslan school hostage
crisis (see below), President Putin proposed a number of changes to the political
system, promptly approved by the legislature, that further concentrated power in his
hands, necessitated, he said, by Russia’s intensified war against international
terrorism. He proposed, inter alia, that regional governors no longer be popularly
elected, but instead that regional legislatures confirm the president’s appointees as
governors and that all Duma Deputies be elected on the basis of national party lists,
based on the proportion of votes each party gets nationwide. The first measure
makes regional governors wholly dependent on, and subservient to, the president,
undermining much of what remained of Russia’s nominally federal system. The
second measure eliminates independent deputies, further strengthening the pro-
presidential parties that already controlled an absolute majority in the Duma. Putin
and his supporters argued that these measures would help reduce corruption in the
regions and “unify” the country, the better to fight against terrorism. Critics saw the
proposals as further, major encroachments on the fragile democratic reforms of the
1980s and 1990s that had already suffered serious setbacks under Putin. They
warned of Putin’s growing authoritarianism. President Bush, Secretary of State
Powell, and many members of Congress voiced concern that Putin’s September 13
proposals threatened Russian democracy. A few months later, parliament passed a
controversial Kremlin-proposed law regulating non-government organizations
(NGOs), which Kremlin critics charge gives the government leverage to shut down
NGOs that it views as politically troublesome. The U.S. and many European
governments expressed concern about the NGO law.1
On November 14, 2005, President Putin announced major high-level changes
in the government. Presidential Administration head Dmitry Medvedev was named
First Deputy Prime Minister and put in charge of high-level “national priority
projects.” Defense Minister Sergei Ivanov was promoted to Deputy Prime Minister
and retained his Defense Ministry post. In February 2007, Ivanov was elevated to
First Deputy Prime Minister. These two men were widely seen as the front runners
to succeed Putin in March 2008.
On September 10, 2007, Putin made a surprise announcement dismissing Prime
Minister Mikhail Fradkov — whom he had plucked from obscurity to take that post
in 2005 — and nominated in his place the even more obscure Victor Zubkov, who
had previously headed the Financial Monitoring Service, an arm of the Finance
Ministry that investigates money-laundering. The 65 year-old Zubkov had no
political power base or constituency of his own — other than Putin’s backing. Putin
explained this move as necessary to “prepare the country” for forthcoming elections,

1 See CRS Report RL32662, Democracy in Russia: Trends and Implications for U.S.
Interests, by Jim Nichol.

which immediately triggered speculation that Zubkov might be Putin’s choice for
president in 2008, perhaps as a “place holder,” a mechanism that would allow Putin
to retain control and/or return to the presidency after a brief interregnum. This
brought the issue of the “Putin succession,” which had been heating up since 2006,
to a full boil.2
But in Russia’s election cycle, the vote for president is preceded by the
parliamentary election, which is seen as a harbinger of the presidential contest. The
Kremlin decided to make the December 2007 parliamentary election a referendum
on Putin and Putinism. And despite Putin’s apparent genuine popularity, they were
determined to take no chances on the outcome. In the run-up to the Duma election,
the authorities used myriad official and unofficial levers of power and influence to
assure an overwhelming victory for United Russia, the main Kremlin party. Putin’s
October 1, 2007 announcement that he would run for parliament at the head of the
United Russia ticket made the outcome doubly sure. The state-controlled media
heavily favored United Russia and largely ignored or disparaged the opposition.
Opposition party literature was seized and their rallies often shut down or harassed.
Potentially popular opposition candidates were bought off, intimidated, or barred
from running on “legal technicalities.” In March 2007, for example, the Supreme
Court ruled that Vladimir Ryzhkov’s Republican Party — one of the few remaining
liberal democratic parties — must be disbanded because it violated the 2004 law
requiring parties to have at least 50,000 members and 45 regional offices. Russian
authorities effectively prevented the main election observing body of the
Organization for Security and Cooperation in Europe (OSCE) from sending an
observer team, first by limiting their number to 70 (compared to 450 OSCE observers
for the previous Duma election) and then delaying issuance of visas until the last
minute, thus blocking normal monitoring of the election campaign.
The preordained result of the December 2, 2007 balloting for the Duma was a
sweep by United Russia, which reportedly won 64.3% of the popular vote and 315
of the 450 seats — more than the two-thirds majority required to amend the
constitution. A second pro-kremlin party, A Just Russia — widely believed to have
been created by Kremlin “political technologists” in 2007 to draw leftist votes away
from the Communists — won 7.74 percent of the vote and 38 seats. The platforms
of United Russia and A Just Russia consisted of little more than “For Putin!”
Vladimir Zhirinovsky’s misnamed Liberal Democratic Party of Russia (LDPR), with
8.14% of the vote, won 40 seats. Despite Zhirinovsky’s buffoonery and reputation
for right-wing extremism, the LDPR is also a reliable supporter of Putin in the Duma.
Thus, the Kremlin can count on the votes of 393 of the 450 Duma Deputies. The
only opposition party in the Duma is the Communist Party, which, according to the
official vote count, won 11.57% of the vote and 57 seats. The remaining parties
failed to cross the 7% threshold required to win seats in the legislature. The
traditional liberal democratic parties, Yabloko and the Union of Rightist Forces,
reportedly received 1.59% and 0.96% of the vote, respectively. The officially
declared voter turnout was 63%.3

2 See CRS Report RL34392, Russia’s 2008 Presidential Succession, by Stuart D. Goldman.
3 See CRS Report RS22770, Russia’s December 2007 Legislative Election: Outcome and

Despite some allegations of ballot-box stuffing, voter intimidation, and other
“irregularities,”4 there is little doubt that by dint of Putin’s genuine popularity, an
honest vote count would still have given United Russia a resounding victory. The
main problem with the election was not the vote count, but the entire process leading
up to the balloting. In the words of an OSCE Parliamentary Assembly official, “the
executive branch acted as though it practically elected the parliament itself.”
On December 10, barely a week after the Duma election, Putin announced his
choice for president: Dmitry Medvedev. One day after his anointment, Medvedev
announced that, if elected, he would ask Putin to serve as Prime Minister. One week
later, Putin formally accepted this offer. This carefully choreographed arrangement
presumably was meant to assure political continuity for Putin and those around him.
On March 2, 2008, Medvedev easily won election as Russia’s next president,
with 70% of the vote. The Kremlin made sure that the outcome was never in doubt.
News coverage was skewed overwhelmingly in Medvedev’s favor, especially TV
news, the principal source of political news for most Russians. The previous format
of “all-Putin, all the time” was shifted to Medvedev.5 Like Putin before him,
Medvedev refused to participate in public debates with any of his rivals. Moscow
also imposed the same restrictions on the OSCE’s election observers as during the
Duma election, with the same result: the OSCE refused to send election observers
under the conditions imposed by Moscow. Election commissions in the United
States, the United Kingdom, Spain, France, and Germany all officially informed
Moscow that they would not observe the presidential ballot.6
The Putin regime manipulated election laws and regulations to block
“inconvenient” candidates such as former Prime Minister Mikhail Kasyanov and
former chess champion Gary Kasparov from getting onto the ballot. In the end there
were three candidates besides Medvedev. The LDPR’s Vladimir Zhironovsky and
the Communists’ long-time leader, Gennady Zyuganov. The fourth was the little-
known Andrei Bogdanov, leader of the tiny Democratic Party.7
Dmitry Medvedev, the 42 year-old long-time Putin protégé, was inaugurated as
President on May 7, 2008. Like Putin and many of the Kremlin inner circle,
Medvedev is a native of St. Petersburg (formerly Leningrad). But unlike so many of
the inner circle, he does not have a background in the security services. His

3 (...continued)
Implications, by Jim Nichol.
4 The embattled North Caucasus regions of Chechnya, Ingushetia, and Dagestan reported
heroically Soviet-era voter turnout of 99%, 98% and 92% respectively, with United Russia
gaining 99% of the vote in Chechnya and Ingushetia and 89% in Dagestan.
5 “Study Shows Medvedev Benefits from Massive Media Advantage,” RFE/RL, Newsline,
January 23, 2008; Peter Finn, “Prime Time for Putin’s Anointed,” Washington Post, January

30, 2008.

6 RFE/RL, Newsline, February 5, 20, 2008.
7 This party, seen by many as a Kremlin-backed pseudo-opposition group, won fewer than

90,000 votes nation-wide in the December 2007 Duma election.

academic training is as a lawyer. He is viewed by many in Russia and the West as
one of the most liberal of the generally illiberal cadre surrounding Putin. All agree
that he is a Putin loyalist.
Although there was no doubt that Medvedev would win the election, there is
considerable uncertainty about the future relationship between President Medvedev
and Prime Minister Putin. Competing scenarios and rumors abound. Some speculate
that Putin’s obedient Duma majority may amend the constitution to shift power from
the president to the prime minister. But Russia’s super-presidential constitution
would require a major re-write to implement that. Others suggest that President
Medvedev may voluntarily cede substantial power to Prime Minister Putin, allowing
the mentor to continue wielding real power. But such a “dual power” arrangement
is viewed by some observers as inherently unstable. Another scenario envisions
Medvedev resigning after a “decent interval,” necessitating a new presidential
election in which Putin would be eligible to run, since he would not have served
more than two consecutive terms. Alternatively, Putin might remain as prime
minister for a year or two while making sure that Medvedev is an able and loyal
successor — and presumably be prepared to push Medvedev aside if the younger man
proved unsatisfactory. The future is murky.
In 1999, Islamic radicals based in Russia’s break-away republic of Chechnya
launched armed incursions into neighboring Dagestan, vowing to drive the Russians
out and create an Islamic state. At about the same time, a series of bombing attacks
against apartment buildings in Moscow and other Russian cities killed some 300
people. The new government of then-Prime Minister Putin blamed Chechen
terrorists and responded with a large-scale military campaign. Russian security
forces may have seen this as an opportunity to reverse their humiliating 1996 defeat
in Chechnya. With Moscow keeping its (reported) military casualties low and
Russian media reporting little about Chechen civilian casualties, the conflict enjoyed
strong Russian public support, despite international criticism. After a grinding siege,
Russian forces took the Chechen capital, Grozny, in February 2000 and in the
following months took the major rebel strongholds in the mountains to the south.
Russian forces killed tens of thousands of civilians and drove hundreds of thousands
of Chechen refugees from their homes.
In March 2003, Russian authorities conducted a referendum in Chechnya on a
new Chechen constitution that gives the region limited autonomy within the Russian
Federation. Moscow claims it was approved by a wide margin. In October 2003, the
Moscow-appointed head of the Chechen Administration, Akhmad Kadyrov, was
elected President of the republic. Russian hopes that these steps would increase
political stability and reduce bloodshed were disappointed, as guerilla fighting in
Chechnya and suicide bomb attacks in the region and throughout Russia continued.
On May 9, 2004, Kadyrov was assassinated by a bomb blast in Grozny, further
destabilizing Chechnya. On August 29, Alu Alkhanov, Moscow’s preferred
candidate, was elected President of Chechnya, replacing Kadyrov.
Many foreign governments and the U.N. and Organization for Security and
Cooperation in Europe (OSCE), while acknowledging Russia’s right to combat

separatist and terrorist threats on its territory, criticized Moscow’s use of
“disproportionate” and “indiscriminate” military force and the human cost to
innocent civilians and urged Moscow to pursue a political solution. Although
Moscow has suppressed large-scale Chechen military resistance, it faces the prospect
of prolonged guerilla warfare. Russia reportedly has lost over 15,000 troops in
Chechnya (1999-2006), comparable to total Soviet losses in Afghanistan (1979-
1989). Russian authorities deny there is a “humanitarian catastrophe” in the North
Caucasus and strongly reject foreign “interference” in Chechnya. The bloodshed
continued on both sides. Russian forces regularly conduct sweeps and “cleansing
operations” that reportedly result in civilian deaths, injuries, and abductions.
Chechen fighters stage attacks against Russian forces and pro-Moscow Chechens in
Chechnya and neighboring regions and terrorist attacks against civilian targets
throughout Russia.
On September 1, 2004, a group of heavily armed fighters stormed a school in
the town of Beslan, taking some 1,150 children, teachers, and parents hostage and
demanding the withdrawal of Russian forces from Chechnya. Two days later, in a
chaotic and violent battle, 330 hostages and nearly all the pro-Chechen fighters were
killed by explosives set by the hostage-takers and by gunfire from all sides. Radical
Chechen field commander Shamil Basaev later claimed responsibility for the Beslan
school assault. However, Aslan Maskhadov, the nominal political leader of
Chechnya’s separatist movement, denounced the school attack and suicide bombings
against civilian targets as unjustifiable acts of terrorism. Maskhadov, who was
elected President of Chechnya in 1997, was seen by some as a relatively moderate
leader and virtually the only possible interlocutor if Moscow sought a political
resolution to the conflict. Putin’s government labeled Maskhadov, like all Chechen
rebels, as a terrorist and refused to negotiate with him. On March 8, 2005, Russian
authorities announced that they had killed Maskhadov in a shoot-out in Chechnya,
apparently extinguishing what little hope remained for a political settlement. Chechen
rebel field commanders named Abdul-Khalim Sadulaev President and vowed to
continue their struggle for independence.
In succeeding months, Russian forces eliminated many Chechen rebel field
commanders. On June 17, 2006, Chechen rebel president Sadulaev was killed in a
fire fight by Russian federal forces. Three weeks later, Basaev, the most prominent
and notorious Chechen rebel field commander, was killed in an explosion.
Moscow’s success in eliminating so many Chechen rebel leaders and inflicting losses
on rebel bands leads some to speculate that the back of the resistance has been
broken. Nevertheless, sporadic attacks against Russian forces and pro-Moscow
officials continue in Chechnya and neighboring regions.8

8 See CRS Report RL32272, Bringing Peace to Chechnya? Assessments and Implications,
by Jim Nichol.

Economic Developments
After the collapse of the Soviet Union, Russia experienced widespread
economic dislocation and a drop of close to 50% in GDP. Conditions worse than the
Great Depression of the 1930s in the United States impoverished much of the
population, some 15% of which is still living below the government’s official (very
low) poverty level. Russia is also plagued by environmental degradation and
ecological catastrophes of staggering proportions; the near-collapse of the health
system; sharp declines in life expectancy and the birth rate; and widespread organized
crime and corruption. The population has fallen by about 6 million since 1991,
despite net in-migration of 5 million mostly ethnic Russians from other former Soviet
Against this background of near collapse, in 1999, macroeconomic indicators
began a remarkable, and sustained, recovery. This was due partly to the sharp
increase in the price of imports and increased price competitiveness of Russian
exports caused by the 74% ruble devaluation in 1998. The surge in the world price
of oil and gas also buoyed the economy. From 1999 to 2007, Russia’s GDP, in
current dollars, quintupled from $200 billion to $1.2 trillion, an average growth rate
of 25% per year. In inflation-adjusted real terms, economic growth was a less
astounding, but still impressive, 6.7%. In addition, Russia virtually eliminated its
public foreign debt which, in 1999, had grown to 100% of GDP. Russia’s hard
currency reserves exceed $450 billion, the third largest in the world after China and
Japan. And Russia has also established a “rainy day” stabilization fund of more than
$150 billion. Although some of Putin’s early economic reforms (see below)
contributed to this reversal of fortune, Putin is more the beneficiary than the cause
of Russia’s economic revival.9 Nevertheless, in Russia Putin generally gets credit for
the recovery, which is a major factor in his popularity.
Not everything is bright in this picture, however. While Russia is not a “petro-
state” in the classic sense, its economy is very heavily dependent on oil and gas,
which account for 63% of Russia’s exports and 50% of total state revenues.
Manufacturing has not recovered from the Soviet collapse and agriculture remains
moribund. Investment in the energy sector is not keeping pace with requirements and
oil and gas production are stagnating. At the same time, inflation is increasing, from

7% at the beginning of 2007 to 11% by years’s end, and appears headed toward 15%

in 2008.10
Economic Reform
In January 1992, Yeltsin launched a sweeping economic reform program
developed by Acting Prime Minister Yegor Gaidar. The Yeltsin-Gaidar program
wrought fundamental changes in the economy. Although the reforms suffered many

9 Anders Aslund, “The Russian Economy Facing 2017,” in Alternative Futures for Russia
to 2017, by Andrew C. Kuchins, Center for Strategic and International Studies, Washington,
D.C., November 2007.
10 Ibid.

setbacks and disappointments, they are widely believed to have carried Russia
beyond the point of no return as far as restoring the old Soviet economic system is
concerned. The Russian government removed controls on the vast majority of
producer and consumer prices in 1992. Many prices have reached world market
levels. The government also launched a major program of privatization of state
property. By 1994, more than 70% of industry, representing 50% of the workforce
and over 62% of production, had been privatized, although workers and managers
owned 75% of these enterprises, many of which have not still been restructured to
compete in market conditions. Critics charged that enterprises were sold far below
their true value to “insiders” with political connections.
Putin initially declared reviving the economy his top priority. His liberal
economic reform team formulated policies that won G-7 (now G-8, with Russia as
a full member) and IMF approval in his first term. Some notable initiatives include
a flat 13% personal income tax and lower corporate taxes that helped boost
government revenue and passage of historic land privatization laws. In May 2004,
Russia reached agreement with the EU on Russian accession to the WTO. EU
leaders reportedly made numerous economic concessions to Moscow. Russia agreed
to sign the Kyoto Protocol and roughly double the price of natural gas domestically
by 2010. In November 2006, U.S. and Russian officials signed a bilateral agreement
on Russia’s accession to the WTO, thus completing a major step in the accession
process. Russia still needs to complete negotiations with working party members.11
In Putin’s second term, massive profits from oil and gas exports and related
revenues made it easier for the government to put off politically difficult, but
necessary, decisions on structural economic reform. Reform was further undermined
by the Kremlin’s take-over of oil giant Yukos, and subsequent re-nationalizations,
which increased inefficiencies and corruption and darkened the investment climate.
Putin appeared to turn away from market reform toward greater government control
of “strategic sectors” of the economy, with top government officials being put into
leadership positions in many of Russia’s largest economic enterprises.
Foreign Policy
Russia and the West
In the early 1990s, Yeltsin’s Russia gave the West more than would have
seemed possible. Moscow cut off military aid to the Communist regime in
Afghanistan; ordered its combat troops out of Cuba; committed Russia to a reform
program and won IMF membership; signed the START II Treaty that would have
eliminated all MIRVed ICBMs (the core of the Soviet Strategic Rocket Forces); and
radically reduced Russian force levels in many other categories. The national
security policies of Yeltsin and Foreign Minister Andrei Kozyrev came to be strongly
criticized at home, not only by hardline communists and ultra nationalists but also by
many centrists and prominent democrats, who came to agree that the Yeltsin/Kozyrev

11 See CRS Report RL31979, Russia’s Accession to the WTO, by William Cooper.

foreign policy lacked a sense of national interest and was too accommodating to the
West — at Russia’s expense.
In 1995, Yeltsin replaced Kozyrev as Foreign Minister with Yevgeny Primakov,
who was decidedly less pro-Western. Primakov opposed NATO enlargement,
promoted integrating former Soviet republics under Russian leadership, and favored
cooperation with China, India, and other states opposed to U.S. “global hegemony.”
When Primakov became Prime minister in September 1998, he chose Igor Ivanov to
succeed him as Foreign Minister. Ivanov kept that position until March 2004, when
he was replaced by career diplomat Sergei Lavrov, formerly Russia’s U.N.
During Putin’s first year as president he continued Primakov’s policies, but by
2001, even before September 11, he made a strategic decision to reorient Russian
national security policy toward cooperation with the West and the United States.
Putin saw Russia’s economic revitalization proceeding from its integration into the
global economic system dominated by the advanced industrial democracies —
something that could not be accomplished in an atmosphere of political/military
confrontation or antagonism with the United States. After 9/11, the Bush
Administration welcomed Russia’s cooperation against Al Qaeda and the Taliban
regime in Afghanistan, which paved the way for broader bilateral cooperation.
Moscow remained unhappy about NATO enlargement in Central and Eastern
Europe, but reconciled itself to that. NATO and Russian leaders meeting in Rome
signed the “NATO at 20” agreement, in which Russia and NATO members were to
participate as equals on certain issues. Russia reacted relatively calmly to NATO’s
admission of seven new members (May 2004), including the former Soviet Republics
of Estonia, Latvia, and Lithuania.
During Putin’s second term, relations with the West grew more strained. The
status of Kosovo became a very contentious issue, with the United States, NATO,
and the EU supporting Kosovo’s independence from Serbia, while Russia strongly
backed Belgrade’s insistence that Kosovo remain part of Serbia.12 Another dispute
between Russia and the West that threatens, according to some analysts, to revive
Cold War era enmity, is the proposed U.S. deployment of missile defense systems in
Poland and the Czech Republic. But the most destabilizing and potentially
dangerous issue of all may be Russia’s troubled relations with — and the possible
NATO accession by — Georgia and Ukraine. These issues, and the recent Russia-
Georgia conflict, are discussed below.
Russia and the Soviet Successor States
After the collapse of the Soviet Union, a consensus emerged in Moscow on
reestablishing Russian dominance in this region as a very high priority. There has
been little progress toward overall CIS integration. Russia and other CIS states
impose tariffs on each others’ goods in order to protect domestic suppliers and raise

12 See CRS Report RL31053, Kosovo and U.S. Policy: Background to Independence, by
Julie Kim and Steven Woehrel.

revenue, in contravention of an economic integration treaty. Recent CIS summit
meetings have ended in failure, with many of the presidents sharply criticizing lack
of progress on common concerns and Russian attempts at domination. The CIS as
an institution appears to be foundering, and in March 2005, Putin called it a
“mechanism for a civilized divorce.”
On the other hand, in October 2000, the presidents of Russia, Belarus, Armenia,
Kazakhstan, Kyrgyzstan, and Tajikistan upgraded their 1992 Collective Security
Treaty, giving it more operational substance and de jure Russian military dominance.
In February 2003, the presidents of Russia, Ukraine, Belarus, and Kazakhstan agreed
in principle to create a “single economic space” (SES) among the four countries.
They signed a treaty to that effect in September 2003 but failed to agree on
fundamental principles and terms of implementation. The December 2004 election
of western-oriented Viktor Yushchenko as President of Ukraine seemed to kill the
SES agreement, but Yushchenko’s political reverses in 2005-2006 and the
appointment of a more pro-Russian Prime Minister in Kyiv in August 2006 put this
matter in play again for a time.
Russia and Belarus have taken some steps toward integration. Belarusian
President Aleksandr Lukashenko may have hoped for a leading role in a unified state
during Yeltsin’s decline. Lukashenko unconstitutionally removed the parliamentary
opposition in 1996 and strongly opposes market reform in Belarus, making economic
integration difficult and potentially very costly for Russia. In April 1997, Yeltsin and
Lukashenko signed documents calling for a “union” between states that were to
remain “independent and sovereign,” and a year later, they signed a Union Charter.
Lukashenko minimized his and his country’s political subordination to Moscow.
Yeltsin avoided onerous economic commitments to Belarus. After protracted
negotiations, the two presidents signed a treaty on December 8, 1999, committing
Russia and Belarus to form a confederal state. Moscow and Minsk continue to differ
over the scope and terms of union, and Putin repeatedly has sharply criticized
Lukashenko’s schemes for a union in which the two entities would have equal power.
The prospects for union seem to be growing more distant, especially after the sharp
oil price dispute between the two governments in January 2007 that temporarily
disrupted Russian oil deliveries to Belarus.
Russian forces remain in Moldova against the wishes of the Moldovan
government (and the signature of a troop withdrawal treaty in 1994), in effect
bolstering a neo-Communist, pro-Russian separatist regime in the Transnistria region
of eastern Moldova. Russian-Moldova relations warmed, however, after the election
of a communist pro-Russian government in Moldova in 2001, but even that
government became frustrated with Moscow’s manipulation of the Transnistrian
separatists. The United States and the EU call upon Russia to withdraw from
Moldova. Russian leaders have sought to condition the withdrawal of their troops
on the resolution of Transnistria’s status, which is still manipulated by Moscow.
Moscow has used the Armenian-Azerbaijani conflict over Nagorno-Karabakh
to pressure both sides and win Armenia as an ally. Citing instability and the
threatened spread of Islamic extremism on its southern flank as a threat to its
security, Moscow intervened in Tajikistan’s civil war in 1992-93 against Tajik rebels
based across the border in Afghanistan.

A major focus of Russian policy in Central Asia and the Caucasus has been to
gain more control of natural resources, especially oil and gas, in these areas. Russia
seeks a stake for its firms in key oil and gas projects in the region and puts pressure
on its neighbors to use pipelines running through Russia. This became a contentious
issue as U.S. and other western oil firms entered the Caspian and Central Asian
markets and sought alternative pipeline routes. Russia’s policy of trying to exclude
U.S. influence from the region as much as possible, however, was temporarily
reversed by President Putin after the September 11 attacks. Russian cooperation with
the deployment of U.S. military forces in Uzbekistan, Kyrgyzstan, and Tajikistan
would have seemed unthinkable before September 11. More recently, however,
Russian officials have voiced suspicions about U.S. motives for prolonged military
presence in Central Asia.
On July 5, 2005, the Shanghai Cooperation Organization (comprising China,
Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan), approved a Moscow-
backed initiative calling for establishing deadlines for the withdrawal of U.S. and
coalition military bases from the Central Asian states. On July 29, 2005, the Uzbek
government directed the United States to terminate its operations at the
Karshi-Khanabad (K2) airbase within six months. Tashkent is believed to have acted
not only in response to Russian and Chinese urging but also out of anger over sharp
U.S. criticism of the Uzbek government’s massacre of anti-government
demonstrators in Andijan in May 2005.13
A Russian-Estonian political crisis erupted in April-May 2007 in connection
with the Estonian government’s relocation of a WW II Soviet war memorial from
central Tallinn to a suburban military cemetery. The Russian government denounced
this act as “fascistic” and “blasphemous.” On the night of April 27, ethnic Russians
in Tallinn — with Moscow’s seemingly tacit encouragement — rioted, ransacking
many commercial establishments. One Russian youth was stabbed to death.
Moscow denounced Estonian “repression” of “peaceful Russian demonstrators,”
made numerous demands of the government in Tallinn, and called upon the EU to
protest Estonia’s actions. This was accompanied by extensive cyber attacks against
Estonian government and commercial websites. The Russian state railway monopoly
announced that due to a sudden scarcity of railway cars, all shipments of coal and oil
to and through Estonia would be halted. The EU (of which Estonia is a member)
backed Estonia and criticized Russia’s political and economic pressure.14
Russian forces intervened in Georgia’s multi-faceted civil strife, finally backing
the Shevardnadze government in November 1993 — but only after it agreed to join
the CIS and allow Russia military bases in Georgia. Russia tacitly supported
Abkhazian and South Ossetian separatism in Georgia and delayed implementation
of a 1999 OSCE-brokered agreement to withdraw from military bases in Georgia.
In 2002, tension arose over Russian claims that Chechen rebels were staging cross-

13 For more on Russian policy in these regions, see CRS Report RL33458, Central Asia:
Regional Developments and Implications for U.S. Interests by Jim Nichol, and CRS Report
RL33453, Armenia, Azerbaijan, and Georgia: Political Developments and Implications for
U.S. Interests, also by Jim Nichol.
14 See CRS Report RS22692, Estonia: Current Issues and U.S. Policy, by Steven Woehrel.

border operations from Georgia’s Pankisi Gorge, near the border with Chechnya. In
2002, the Bush Administration sent a small contingent of U.S. military personnel to
Georgia to help train and equip Georgian security forces to combat Chechen, Arab,
Afghani, Al Qaeda, and other terrorists who had infiltrated into Georgia. Tension
between Moscow and Tbilisi sharpened further after Georgia’s “Rose Revolution”
catapulted U.S.-educated Mikhiel Saakashvili into the presidency in November 2003.
Saakashvili is an outspoken critic of Moscow and seeks to bring Georgia into NATO.
Nevertheless, in July 2005, Russia concluded an agreement with Georgia to withdraw
its forces from military bases it had occupied in Georgia since the Soviet era. The
base withdrawal was completed in 2007, although the continued presence of Russian
“peacekeepers” in Abkhazia and South Ossetia was strongly objected to by the
Georgian government.15 In September 2006, Georgian authorities arrested four
Russian army officers on charges of espionage. Although the Georgian government
soon released the officers, Moscow imposed a broad economic embargo against
Georgia and expelled hundreds of Georgians from Russia.
Escalating tension between Moscow and Tbilisi over Abkhazia and South
Ossetia in 2008 led some observers to warn of the danger of war. In March-April
2008, Russia lifted trade sanctions against Abkhazia, established broad-ranging
government-to-government ties with the regions, and sent more “peacekeeping”
troops into Abkhazia. Russian forces shot down several unmanned aerial vehicles
sent over Abkhazia by the Georgians for reconnaissance. Putin adamantly opposed
NATO membership for Georgia, arguing that it would threaten Russia’s security.
Many Russian politicians argued that since the United States and most NATO and
EU members supported Kosovo’s independence, Russia should recognize the
independence of Abkhazia, South Ossetia, and the Transnistrian region of Moldova.
In July -August 2008, sporadic clashes occurred between Georgian and South
Ossetian forces. On August 7, the violence spun out of control and Georgia launched
a major thrust into South Ossetia that temporarily routed the separatists. Vastly
superior Russian forces quickly pushed the Georgian Army out of South Ossetia,
occupied Abkhazia, and drove deeply into Georgian territory. Russia’s ground and
air offensive against Georgia continued until the night of August 12-13. On August
15, the Georgian government accepted a French-brokered cease-fire that left Russian
forces in control of South Ossetia, Abkhazia, and “security zones” in indisputably
Georgian territory as well.16 On August 26, President Medvedev signed a decree
officially recognizing the independence of South Ossetia and Abkhazia. This was
immediately denounced by the United States, NATO, and the European Union.
Some observers view Russia’s actions in Georgia as a qualitative shift in Russian
relations with the United States and NATO, from competition to enmity. Some view
Russia’s actions in Georgia as having potentially grave implications for Ukraine.

15 See CRS Report RL33453, Armenia, Azerbaijan, and Georgia: Political Developments
and Implications for U.S. Interests, by Jim Nichol.
16 See CRS Report RL34618, Russia-Georgia Conflict in South Ossetia: Context and
Implications for U.S. Interests, by Jim Nichol, August 22, 2008.

Of all the Soviet successor states, Ukraine is the most important for Russia.
Early on, the Crimean Peninsula was especially contentious. Many Russians view
it as historically part of Russia, and say it was illegally “given” to Ukraine by
Khrushchev in 1954. Crimea’s population is 67% Russian and 26% Ukrainian. In
April 1992, the Russian legislature declared the 1954 transfer of Crimea illegal.
Later that year Russia and Ukraine agreed that Crimea was “an integral part of
Ukraine” but would have economic autonomy and the right to enter into social,
economic, and cultural relations with other states. There was tension over Kyiv’s
refusal to cede exclusive use of the Sevastopol naval base in Crimea to Russia.
Finally, in May 1997, Yeltsin and Ukrainian President Leonid Kuchma signed a
Treaty resolving the dispute over Sevastopol and the Black Sea Fleet and declaring
that Russian-Ukrainian borders cannot be called into question. This agreement,
widely viewed as a major victory for Ukrainian diplomacy, was ratified in April
1999. However, as tension rose between Moscow and Kyiv after the 2004 “Orange
Revolution,” some Russian politicians have revived the issue of Crimea’s
sovereignty. Ukrainian leaders are seeking to assure the departure of the Russian
Navy from Sevastopol by the treaty-stipulated date of 2017. Moscow seeks to keep
that naval base permanently.
Ukraine’s October 31, 2004, presidential election pitted the openly pro-Moscow
Prime Minister, Viktor Yanukovych, against an independence and reform-minded
candidate, Viktor Yushchenko. Putin strongly and openly backed Yanukovych and
lent much material support to his campaign. Nevertheless, Yushchenko narrowly
out-polled Moscow’s man in the first round. In the disputed run-off election on
November 21, Yanukovych initially claimed victory and was publically congratulated
by Putin. Evidence of widespread election fraud, however, sparked massive
Ukrainian street demonstrations and strong U.S. and EU criticism, pitting Russia
against the West in a way reminiscent of the Cold War. After Ukraine’s parliament
and Supreme Court threw out the results of the November 21 election, the re-run on
December 26 was won by Yushchenko (52% vs. 44%). Many observers in Russia,
Ukraine, and the West, saw this outcome (hailed as the “Orange Revolution”) as a
powerful blow to perceived Russian hopes of reasserting dominance over Ukraine.
Yushchenko declared integrating Ukraine economically and politically into Europe
as his top priority, with NATO membership an ultimate goal.
Under Yushchenko, Ukraine opted out of the SES agreement promoted by
Moscow. Ukraine, however, is economically dependent on Russia, especially for
energy, although Kyiv also has some leverage in this area, as the main pipelines
carrying Russian gas and oil to Europe pass through Ukraine. This troubled
relationship leapt to prominence on January 1, 2006, when Russia stopped pumping
natural gas to Ukraine after the two sides had failed for months to reach agreement
on Russia’s proposed quadrupling of the price of gas. This led to a sharp reduction
in Russian gas supplies to Central and Western Europe, which pass through Ukraine.
In response to strong European protests, Russia resumed pumping gas to and through
Ukraine on January 3. The next day, Russia and Ukraine announced agreement on
a complicated deal that doubled the price Ukraine paid for gas. Many analysts saw
the outcome as strengthening Russian influence in Ukraine and politically weakening
Yushchenko prior to parliamentary elections (March 26, 2006), in which
Yushchenko’s party won only 13% of the vote, finishing third among five major
parties. After four months of political deadlock in Kyiv, Yushchenko appointed his

2004 arch-enemy, Yanukovych, Prime Minister in August 2006. Yanukovych,

however, signed an agreement pledging to continue Yushchenko’s policy of
integration with the West, and Yushchenko was able to have pro-western members
of his own party head the Ministries of Foreign Affairs and Defense. This
arrangement broke down and in April 2007 Yushchenko triggered a political
showdown by dissolving the pro-Yanukovych parliament and calling for snap
parliamentary elections. After a prolonged standoff, the two sides agreed on
elections in September, which resulted in a narrow victory for the old Orange
Revolution Yushchenko-Timoshenko coalition. Yulia Timoshenko became Prime
Minister. The Yushchenko-Timoshenko government put NATO accession high on
its agenda, which aroused vehement Russian opposition. At the NATO summit in
Bucharest, April 2-4, 2008, Russia was relieved that the Alliance did not to offer
Ukraine (and Georgia) immediate Membership Action Plans, despite President
Bush’s strong backing for MAPs. But NATO’s decision to review Ukraine’s and
Georgia’s requests for MAPs in December 2008 keeps the issue alive. In a
conversation with President Bush after the NATO summit, Putin warned of Ukraine’s
“fragility” and its possible “dismemberment” if it tried to join NATO.
Some observers believe that Russia’s conflict with Georgia was provoked by
Moscow, partly in order to block Georgia’s entry in NATO. President Yushchenko
noted the parallel between Russia’s invasion of Georgia and its threats to Ukraine
when he declared: “We support Georgian territorial integrity and its sovereignty
because we stand for Ukrainian territorial integrity and sovereignty.”17 It remains to
be seen how these Ukrainian political developments ultimately will affect the
country’s relations with Russia, the EU, NATO, and the United States.18
Defense Policy
Fundamental Shakeup of the Military
The Russian armed forces and defense industries have been in turmoil since
1992. Their Soviet-era privileged position in the allocation of resources has been
broken, as has their almost sacrosanct status in official ideology and propaganda.
Hundreds of thousands of troops were withdrawn from Eastern Europe, the former
Soviet Union, and the Third World. Massive budget cuts and troop reductions forced
hundreds of thousands of officers out of the ranks into a depressed economy. Present
troop strength is about 1.2 million men. (The Soviet military in 1986 numbered 4.3
million.) Weapons procurement virtually came to a halt in the 1990s and is only
slowly reviving. Readiness and morale remain low, and draft evasion and desertion
are widespread. Yeltsin and later Putin declared military reform a top priority, but

17 “President Yushchenko Says Ukraine Supports Unconditional Territorial Integrity of
Georgia as it Equates Such Georgian Threat and Own Sovereignty,” UkrInform [Kyiv],
August 15, 2008.
18 See CRS Report RL33460, Ukraine: Current Issues and U.S. Policy, by Steven Woehrel;
and CRS Report RL34415, Enlargement Issues at NATO’s Bucharest Summit, by Paul
Gallis, Paul Belkin, Carl Ek, Julie Kim, Jim Nichol, and Steven Woehrel.

fundamental reform of the armed forces and the defense industries is a difficult,
controversial, and costly undertaking. The Chechen also conflict delayed military
Putin has pledged to strengthen and modernize the armed forces, and has taken
some steps in that direction. At the same time, he appears to be aware of Russia’s
financial and material limitations. The decisions announced in August and
September 2000 to greatly reduce Russia’s strategic nuclear forces (from 6,000 to

1,500 deployed warheads), to shift resources from strategic to conventional forces,

and to shift from a conscript to a volunteer force suggest possibly serious intent to
effect military reform.
Putin made some changes in the military leadership that may lead to policy
changes. In 2001, Putin named Sergei Ivanov, a former KGB general and close
confidant, to be Defense Minister. Ivanov had resigned his nominal intelligence
service military rank and initially had headed Putin’s Security Council as a civilian.
Putin explained that the man who had supervised the planning for military reform
(Ivanov) should be the man to implement reform as Defense Minister. In May 2004,
the General Staff was taken out of the direct chain of command and given a more
advisory role, a move that appears to strengthen civilian control.
The improvement of Russia’s economy since 1999, fueled in large part by the
cash inflow from sharply rising world oil and gas prices, enabled Putin to reverse the
budgetary starvation of the military during the 1990s. Defense spending has
increased substantially in each of the past few years. The 2007 defense budget was
821 billion rubles ($31.6 billion), a fourfold increase since 2002. If one adds the
funds allotted in 2007 for the nuclear, security, and defense-related law-enforcement
activities to the total defense expenditures, total budget spending on defense reaches
around $58 billion.19 According to Russian press reports, defense spending in 2008
will be 20% higher than 2007. Even factoring in purchasing power parity, Russian
defense spending still lags far behind current U.S. or former Soviet, levels. But
Russia is beginning to resume serial production of major weapons systems, albeit at
rates very far below Soviet Cold-War levels. Some high-profile military activities
have been resumed, such as large-scale multi-national military exercises, show-the-
flag naval deployments to the Mediterranean and the Atlantic, and strategic long-
range bomber patrols that approach U.S. and NATO airspace.
Despite its difficulties, the Russian military remains formidable in some respects
and is by far the largest in the region. Because of the deterioration of its conventional
forces, however, Russia relies increasingly on nuclear forces to maintain its status as
a major power. There is sharp debate within the Russian armed forces about
priorities between conventional vs. strategic forces and among operations, readiness,
and procurement. Russia is trying to increase security cooperation with the other CIS
countries. Russia has military bases on the territory of all the CIS states except
Azerbaijan and is seeking to take over or share in responsibility for protecting the
external borders of the CIS. In the proposed Russia-Belarus union, President
Lukashenko pointedly emphasizes the military dimension. On the other hand,

19 “Russia: Reviving The Army, Revising Military Doctrine,” RFE/RL, March 12, 2007.

Georgia, Ukraine, Moldova, and Azerbaijan are shifting their security policies toward
a more western, pro-NATO orientation. The August 2008 Russia-Georgia conflict,
however, demonstrated that in certain circumstances, Moscow will use military force
and can do so effectively and with impunity, reinforcing the “lesson” that small
countries adjacent to Russia may disregard Moscow’s interests and warnings only at
their peril.
Control of Nuclear Weapons
When the U.S.S.R. collapsed in 1991, over 80% of its strategic nuclear weapons
were in Russia. The remainder were deployed in Ukraine, Belarus, and Kazakhstan.
Those three states completed transfer of all nuclear weapons to Russia and ratified
the Nuclear Non-Proliferation Treaty as non-nuclear-weapon states by 1995-1996.
All Soviet tactical nuclear weapons, which had been more widely dispersed,
reportedly were moved to Russia by 1992. The command and control system for
strategic nuclear weapons is believed to be tightly and centrally controlled, with the
Russian president and defense minister responsible for authorizing their use. The
system of accounting and control of nuclear (including weapons grade) material,
however, is much more problematic, raising widespread concerns about the danger
of nuclear proliferation. There are growing concerns about threats to Russian
command and control of its strategic nuclear weapons resulting from the degradation
of its system of early warning radars and satellites. At the June 2000 Clinton-Putin
summit, the two sides agreed to set up a permanent center in Moscow to share near
real-time information on missile launches, but this has yet to be implemented.20
U.S. Policy
U.S.-Russian Relations
The spirit of U.S.-Russian “strategic partnership” of the early 1990s was
replaced by increasing tension and mutual recrimination in succeeding years. In the
aftermath of the September 11, 2001 attacks, the two nations reshaped their
relationship on the basis of cooperation against terrorism and Putin’s goal of
integrating Russia economically with the West.21 Since 2003, however, tensions
have reemerged on a number of issues that again strain relations. Although
cooperation continues in some areas, and Presidents Bush and Putin strove to
maintain at least the appearance of cordial personal relations, there is now more
discord than harmony in U.S.-Russian relations. This was highlighted by Putin’s
increasingly harsh criticism of the United States in 2007-2008,22 by the sharp

20 See CRS Report RL32202, Nuclear Weapons in Russia: Safety, Security, and Control
Issues, by Amy F. Woolf.
21 For the change in Russian policy toward integration with the West and cooperation with
the United States, see CRS Report RL31543, Russian National Security Policy After
September 11, by Stuart D. Goldman, last updated August 20, 2002.
22 See, for example, speech at the annual Munich security conference on February 10, 2007

disagreements over Kosovo’s independence and the proposed U.S. missile defense
deployments in Poland and the Czech Republic, and finally over Russia’s invasion
of Georgia in August 2008.
Russia’s construction of nuclear reactors in Iran and its role in missile
technology transfers to Iran have been critical sources of tension with the United
States. Despite repeated representations from the White House and Congress, which
argue that Iran will use the civilian reactor program as a cover for a covert nuclear
weapons program, Russia refused to cancel the project, which is nearly completed.
Revelations of previously covert Iranian nuclear developments revived this issue, and
some Russian political leaders criticized the policy of nuclear cooperation with Iran,
giving rise to policy debate on this issue in Moscow. Moscow’s position is that it
intends to continue its civilian nuclear power projects in Iran, while demanding that
Tehran halt its uranium reprocessing and enrichment activities.
In late 2005, Moscow proposed a compromise plan to avert a showdown
between Iran and the United States and the EU over Iran’s insistence on its right to
reprocess uranium. The Russian proposal, which won luke-warm Bush
Administration support, would allow Iran to reprocess uranium, in facilities on
Russian territory, presumably subject to international inspection. After prolonged
talks, Iran’s Foreign Ministry in March 2006 rejected the Russian proposal. The
United States and an EU group (France, Germany, and the U.K.) won Russian (and
Chinese) agreement to move the issue to the UN Security Council. After months of
negotiations, during which Russia argued that diplomacy with Iran would yield
greater results than would sanctions, the Security Council agreed to U.N. Security
Council (UNSC) Resolution 1737, passed unanimously on December 23, 2006, to
impose some modest sanctions on trade with Iran’s nuclear infrastructure and a
freeze on trade with and the assets of ten Iranian entities and twelve individuals.23
In response to Iran’s continued intransigence on the uranium reprocessing issue, on
March 24, 2007 Russia voted with the United States in the UNSC to toughen
sanctions against Iran. Perhaps more significantly, Moscow also withdrew most of
its technicians and scientists from the unfinished Bushehr reactor project, citing
alleged Iranian arrears in payments for the project — a claim that Iranian officials
denied. An attempt by the Bush Administration to win Russian (and Chinese)
approval for a third round of UNSC sanctions in late 2007 proved unsuccessful.
Administration hopes were further dimmed by the publication in December 2007 of
Key Judgements of the National Intelligence Estimate on Iran that cast doubt on
earlier U.S. assertions that Iran was unquestionably pursuing a clandestine nuclear
weapons program. On March 3, 2008, Russia again voted with the United States,
France, the U.K. and China in the UNSC to impose a third round of sanctions against
Iran, but these “watered down” sanctions mostly called for voluntary application by
UN members. More significant was Russia’s decision to resume construction and
shipment of nuclear fuel to Bushehr. Fuel delivery was completed in January 2008.
The reactor is expected to begin operation in late 2008 or 2009.

22 (...continued)
and his annual address to parliament on April 26, 2007.
23 See CRS Report RL32048, Iran: U.S. Concerns and Policy Responses, by Kenneth

Since the mid-1990s, U.S. and Russian interests have clashed over Iraq. Russia
strongly opposed military action against Iraq in connection with the U.N. inspection
regime. After September 11, Moscow moved away from blanket support of Iraq.
Some Russian officials suggested that under certain circumstances, U.S. military
action against Iraq might not seriously strain U.S.-Russian relations — provided it
was not unilateral and Russia’s economic interests in Iraq were protected. As the
United States moved toward military action against Iraq, Putin tried to balance three
competing interests: protecting Russian economic interests in Iraq; restraining U.S.
“unilateralism” and global dominance; and maintaining friendly relations with the
United States. In February-March 2003, Putin aligned Russia with France and
Germany in opposition to U.S. military action and threatened to veto a U.S.-backed
UNSC resolution authorizing military force against Iraq. The U.S.-led war in Iraq
further strained U.S.-Russian relations, but the senior leadership in both countries
said that this would not be allowed to jeopardize their overall cooperation. On May
22, 2003, Russia voted with other members of the UNSC to approve a U.S.-backed
resolution giving the United States broad authority in administering post-war Iraq.
A sharp U.S.-Russian clash of interests over missile defense, the ABM Treaty,
and strategic arms reductions flared in the first year of the Bush Administration.
These problems were substantially reduced, but not entirely resolved, at the Bush-
Putin summit in May 2002. The Bush Administration declared its disinterest in
START II and the ABM Treaty and its determination to pursue robust missile
defense. This approach was met with resistance from Moscow, but the
Administration stuck to its policies and, despite skepticism from some Members of
Congress and many European allies, gradually won Russian acquiescence on most
elements of its program.
Moscow reacted negatively to early Bush Administration determination to press
ahead vigorously with missile defense, although the atmospherics, at least, improved
after the Bush-Putin summit in Slovenia on June 16, 2001. In December 2001, the
Bush Administration gave Moscow official notification of its intention to renounce
the ABM Treaty within six months. Russia’s official response was cool but
restrained, calling the U.S. decision a mistake, but saying that it would not cause a
major disruption in relations. Similarly, in January 2002, Moscow reacted negatively
to the Bush Administration’s proposed plans to put in storage many of the nuclear
warheads it planned to withdraw from deployment, rather than destroy them. Again,
however, Russian criticism was relatively restrained, while the two sides continued
intensive negotiations.
The negotiations bore fruit in mid-May, when final agreement was announced.
Moscow won U.S. agreement to make the accord a treaty requiring legislative
approval. The terms of the treaty, however, achieved all the Administration’s key
goals: deployed strategic nuclear warheads are to be reduced to 1,700-2,200 by 2012,
with no interim timetable, no limits on the mix or types of weapons, and no
requirement for destroying rather than storing warheads. The so-called Treaty of
Moscow was signed by the two presidents on May 24, 2002. On June 13, the United
States became free of all restraints of the ABM Treaty. On the same day, Moscow
announced that it would no longer consider itself bound by the provisions of the
(unratified) START II Treaty, which has become a dead letter. In June 2002, the
commander of Russia’s Strategic Rocket Forces announced that in response to the

U.S. withdrawal from the ABM Treaty, Russia would prolong the life of its MIRVed
ICBM force, which, he said, could be extended another 10-15 years. On June 1,
2003, Presidents Bush and Putin exchanged instruments of ratification allowing the
Treaty of Moscow to enter into force. They also agreed to cooperate in missile
defense. In November 2004, Putin announced that Russia was developing a new
strategic nuclear missile superior to any in the world. The SS-27 reportedly
combines a hypersonic boost phase and a maneuverable warhead, characteristics
designed to defeat (U.S.) ballistic missile defenses.
A sharp new disagreement on missile defense emerged in 2007 in the form of
Russian objections to Bush Administration plans to deploy a ground-based mid-
course missile defense system (GMD) in Europe to help defend U.S. forces and allies
in Europe against a possible long-range ballistic missile threat from Iran. The
proposed GMD system would include 10 silo-based interceptors in Poland and a
radar installation in the Czech Republic.24
Russian objections include the following arguments: a) the proposed GMD,
situated close to Russia’s borders, poses a threat to Russia’s strategic nuclear
deterrent and retaliatory capability and is really directed against Russia, not against
some non-existent Iranian or North Korean threat; b) Russia was not adequately
consulted about the GMD deployment; c) the GMD system, if deployed, will spur a
renewed nuclear arms race; d) the proposed deployments in Poland and the Czech
Republic violate earlier U.S./NATO pledges to Moscow not to establish new military
bases in those countries; e) the missiles deployed in Poland could have offensive
capability to strike targets in Russia; f) the radar in the Czech Republic could be used
to “spy” on Russia.
Supporters of the GMD deployment dismiss these arguments as misinformed,
spurious, or malicious. It is not clear to what extent, if any, competent Russian
authorities believe these arguments, although there is deep underlying resentment of
U.S. military deployments on the territory of Moscow’s former Warsaw Pact allies.
Many U.S. and European observers believe, however, that Russia’s objections to
GMD have other motives: a) to drive a wedge between the United States and its
European allies; b) to drive a wedge between new NATO members such as Poland
and the Czech Republic, which view Russia as unfriendly and potentially threatening,
and West European NATO members such as Germany and France, which seek
cooperation and partnership with Russia; c) to use GMD as an excuse to renounce
certain arms control agreements that Moscow now finds militarily constraining, and;
d) to use GMD to “change the subject” from western criticism of various Russian
domestic and foreign policies to criticism of U.S. “militarism” and “unilateralism.”
Russian officials have threatened that Russia might “target” the GMD facilities
in Poland and the Czech Republic. Russia has threatened to abrogate the 1987
Intermediate-Range Nuclear Forces (INF) Treaty if the GMD system is deployed in
Europe. In his annual address to parliament on April 26, 2007, Putin cited the
proposed GMD deployment as part of the justification for a “moratorium” on Russian

24 See CRS Report RL34051, Long-Range Ballistic Missile Defense in Europe, by Steven
A. Hildreth, and Carl Ek.

compliance with the Treaty on Conventional Forces in Europe (CFE). In late May
2007, Putin warned that the U.S. GMD deployments threatened to spark a new arms
race in Europe and called for an emergency European security conference in June to
consider GMD and the CFE Treaty. This conference, in Vienna, Austria, ended in
In a surprise move during the G8 summit in Germany (June 2007), Putin
appeared to take up Bush’s offer to partner with the United States on missile defense.
Putin suggested that Russia would not object to U.S. interceptor missiles in Iraq,
Turkey, or at sea, and also floated the idea of using a Soviet-era radar facility in
Azerbaijan, leased and operated by Russia, to help track and target hostile missiles
that might be launched from the Middle East. Bush welcomed Putin’s shift on
missile defense that reduced tensions on the issue. At a July 1-2 meeting in
Kennebunkport, Maine, Putin expanded on his counterproposal by recommending
that missile defense be coordinated through offices in Brussels and Moscow. He also
suggested the possible use of a radar in south Russia and said that cooperation could
be expanded to other European countries through the use of the NATO-Russia
council — thus eliminating the need for facilities in Poland and the Czech
Republic.25 President Bush responded positively to Putin’s new proposal, but
insisted on the need for the Eastern European sites.
On October 12, 2007, Secretaries Rice and Gates met with Putin and other
senior Russian officials in Moscow and brought with new proposals aimed at
defusing Russian opposition to GMD. These proposals reportedly included expanded
opportunities for Russian cooperation in building the missile defense system and for
Russian inspections of, and observers at, GMD sites. These proposals appear to have
elicited some interest in Moscow, but not a break through. Talks have continued
intermittently, with another Rice-Gates trip to Moscow and a Bush-Putin meeting in
Sochi, Russia on April 6, 2008. At Sochi, Putin continued to oppose U.S. missile
defense deployments in Poland and the Czech Republic, but expressed “cautious
optimism” that the two sides could eventually reach agreement and that proposed
U.S. confidence-building measures would be “important and useful” if
implemented.26 Meanwhile, Russian officials alternate between harsh criticism of
GMD and demands for clarification and more concessions on the U.S. proposals.
As noted above, the Russia-Georgia conflict appears to be the most serious clash
yet between post-Soviet Russia and the United States and may turn out to be a
turning point in U.S.-Russian relations. It unclear what effect, if any, this will have
on the remaining aspects of bilateral cooperation.
Moscow and Washington are cooperating on some issues of nuclear weapons
reduction and security. Since 1992, the United States has spent over $7 billion in
Cooperative Threat Reduction (CTR or “Nunn-Lugar”) funds and related programs
to help Russia dismantle nuclear weapons and ensure the security of its nuclear
weapons, weapons grade nuclear material, other weapons of mass destruction, and

25 “Putin Expands On His Missile Defense Plan,” New York Times. July 3, 2007; “Putin
Proposes Broader Cooperation On Missile Defense,” Washington Post, July 3, 2007.
26 RFE/RL, Newsline, April 7, 2008.

related technological know-how. During the September 1998 summit, both countries
agreed to share information when either detects a ballistic missile launch anywhere
in the world, and to reduce each country’s stockpile of weapons-grade plutonium by
fifty metric tons. In June 1999, U.S. and Russian officials extended the CTR
program for another seven years. The two sides also agreed to each dispose of an
additional 34 tons of weapons-grade plutonium, with the U.S. to seek international
funding to help finance the $1.7 billion Russian effort. The planned U.S.-Russian
joint missile early warning information center in Moscow, however, has yet to be
established. In April 2002, the Bush Administration decided not to certify that
Russia was fully cooperating with U.S. efforts to verify its compliance with
agreements to eliminate chemical and biological weapons. This could have blocked
U.S. funding for some CTR programs, but President Bush granted Russia a waiver.
In September 2006, the United States and Russia resolved a long-standing
dispute over liability issues that had threatened to disrupt an important bilateral
nuclear nonproliferation program. The Elimination of Weapons-Grade Plutonium
Production Program — designed to convert 68 tons of excess weapons-grade
plutonium (enough for 16,000 nuclear weapons) into mixed oxide fuel for use in
nuclear reactors, a form that cannot be used for weapons by terrorists or others — is
now on track to continue. In November 2007, U.S. Secretary of Energy Bodman and
Russian Federal Atomic Energy Agency Director Sergei Kiriyenko signed a joint
statement outlining a plan to dispose of the 68 tons of plutonium. The U.S.
Department of Energy and Russian counterpart agencies also conduct joint training
exercises to deal with the possibility of civilian nuclear accidents.
On August 4, 2006, the U.S. State Department announced sanctions against the
Russian state arms export agency, Rosoboroneksport, and the aircraft manufacturer
Sukhoi, for alleged violations of the Iran Nonproliferation Act of 2000, thereby
barring U.S. companies from dealing with those Russian entities for two years.
Russian officials denounced the action as retaliation for their Venezuelan arms sales.
In December 2006, the sanctions against Sukhoi were lifted, but those against
Rosoboroneksport were reconfirmed for two more years, over Russian protests.
Despite continued tension between Washington and Moscow over Iran, Iraq,
missile defense, and the future status of Kosova, both governments seek to preserve
mutually advantageous elements of the cooperative relationship they built following
the September 11 attacks. In March 2003, Senator Lugar introduced legislation to
exempt Russia from the Jackson-Vanik amendment to the Trade Bill of 1974, action
which would grant Russia permanent normal trade relations (PNTR) status and
facilitate Russian accession to the WTO, but it received no further action. After years
of difficult negotiations, U.S. and Russian officials concluded a U.S.-Russian trade
agreement in November 2006, paving the way for Russian accession to the WTO.
This means that the 111th Congress may address the issues of PNTR for Russia and
the Jackson-Vanik Amendment. But approval of these measures is by no means
assured. On February 21, 2007, Representative Lantos, then-Chairman of the House
Foreign Affairs Committee, said in a Moscow press conference that he would work
to “end the Jackson-Vanik process,” which he called a “relic of the Cold War.” As
of mid-2008, no legislation to this end has been introduced.

U.S. Assistance
From FY1992 through FY2007, the U.S. government obligated more than $16
billion in assistance to Russia, including over $3.7 billion in Freedom Support Act
(FSA) aid for democratization, market reform, and social and humanitarian aid.
Most of the rest went for CTR (Nunn-Lugar) and other security-related programs.
But Russia’s share of the (shrinking) NIS foreign aid (FSA) account fell from about
60% in FY1993-FY1994 to 17% in FY1998 and has been between 15%-22% since
then. The Administration requested $148 million for Russian FSA programs in
FY2003, $93.4 million in FY2004, $85 million in FY2005, $48 million in FY2006
(which was raised by Congress to $80 million), and $58 million in FY2007. The
Administration’s request for FSA aid to Russia in FY2008 is $50 million.27
Both the FSA and the annual foreign operations appropriations bills contain
conditions that Russia is expected to meet in order to receive assistance. A
restriction on aid to Russia was approved in the FY1998 appropriations and each year
thereafter, prohibiting any aid to the government of the Russian Federation (i.e.,
central government; it does not affect local and regional governments) unless the
President certifies that Russia has not implemented a law discriminating against
religious minorities. Presidents Clinton and Bush have made such determinations
each year.
Since FY1996, direct assistance to the government of Russia has hinged on its
continuing sale of nuclear reactor technology to Iran. As a result, in most years as
much as 60% of planned U.S. assistance to the federal Russian government has been
cut. The FY2001 foreign aid bill prohibited 60% of aid to the central government of
Russia if it was not cooperating with international investigations of war crime
allegations in Chechnya or providing access to NGOs doing humanitarian work in
Chechnya. Possibly as a result of Russian cooperation with the United States in its
war on terrorism, the war crime provision was dropped.

27 See CRS Report RL32866, U.S. Assistance to Russia and the Former Soviet Union, by
Curt Tarnoff.