Will the Pearl Reveal Itself: What is in

Will the Pearl Reveal Itself: What is in Store for the Iranian Oil & Gas Industry? may 3, 2017 E

In January, Iran marked the first anniversary of the lifting of the majority of international sanctions. The Islamic Republic took a short breath of economic freedom. However, after the D. Trump administration set up in the White House, dark clouds started gathering over Iran, posing danger to its economy and energy sector. What did Iran achieve during the one-year period of hope and freedom? What do international investors, including Russian companies, make of Iran’s energy prospects?

Did Iran fulfill its promises?

Reuters

Most of the promises the Iranians were making in the run-up to the sanctions being lifted dealt with oil production and exports. In July 2015 – right before the JCPOA was signed – Iran produced around 2,85 million barrels/day (mbd). At that time, local companies and the government claimed they could increase production up to 4 mbd in three months after the sanctions were lifted, i.e. by March 2016. In statements addressed to the international audience the timeline was somewhat different – 4 mbd by June - September 2016.

Iran has almost fulfilled its plans of oil production, though with a slight delay. According to the latest OPEC statistics, in December 2016 Iran produced 3,7 mbd, as reported by secondary sources, or 3,9 mbd reported by direct communication. The Iranian government pledge to hit the level of 4 mbd by mid-April 2017.

Over the year, Iran managed to win back its market share. According to the U.S. EIA, Iran’s exports of crude and condensate amount for 2,4 mbd, which is twice as much as it exported while under sanctions. Historically, China, India, Japan, and South Korea are the biggest importers of Iranian crude, and they were at the forefront to increase imports from Iran in 2016. The European market followed their lead. Bloomberg reported that in January 2017 European states bought 600 thousand barrels of Iranian oil per day. No longer than a year ago, this figure was equal to zero.

Not only is Teheran boosting its exports to old, established clients, but it is also testing new export destinations. Thus, 2016 saw the first Iranian oil cargo delivered to Poland, with the two biggest refineries being the buyers (before, these refineries relied on Russian crude).

Poland did not rule out the possibilityof striking a long-term oil deal with Iran. In February 2017, news broke about Iranian crude sale to Belarus.

Despite its huge gas reserves, Iran has never been a major gas exporter. Iran’s gas industry is primarily focused on the ever-growing local market. The gas is also essential for oil production, as 17% of the produced natural gas is pumped into the oilfields in order to increase their output. Gas consumption in Iran is growing, and it is growing fast. This means that Iran will keep its focus on gas production and refinery projects that target first and foremost domestic demand. In the mid-run, Iranian gas is unlikely to reach any markets further than those of the neighboring Iraq, Pakistan, Oman, and India. The transport infrastructure linking Iran to these countries is at different stages of construction.

All in all, by February 2016 Iran had shown considerable progress: oil production and export indicators had almost reached the levels promised by the government. Yet it looks like without the inflow of international investment into the sector, any higher altitudes of production are not reachable for Iran. Exhausted by the years of sanctions, Iran’s energy industry needs immense investment and technological renewal along the whole chain from oil and gas exploration, to their refining and electricity generation.

Perhaps Iran’s November 2016 decision to participate in OPEC’s oil production cuts was possible for the very reason that Iran has no technical capabilities to increase oil output any further. Then, Iran committed itself to limit oil production growth by 90 thousand barrels/day till June 2017, surprising many experts. However, it might be that Iran never went out of its way to accept the deal, and the decision was driven by the understanding that the nation will not be able to increase daily production by more than the said 90 thousand barrels. At least not until international companies embark on investment.

International investors: who returned, who is waiting, and who changed their mind?

RIAC Reader.Оil-producing Countries in Crisis

The nuclear deal merely cracked open the Iranian front door to international investors, yet an overwhelming amount of them hurried to squeeze in. The number of business delegations, representatives of international companies and governments that visited Iran in 2016 alone is beyond counting. The crack in the door gave companies an opportunity to assess Iranian projects and claim their place in the Iranian sun. However, the majority of oil and gas deals signed so far are of preliminary nature.

Over the past year and a half, world-leading energy companies signed memorandums of understanding and other provisional agreements with Teheran. In January 2017, these companies were successfully prequalified for Iranian upstream tenders. The list of approved companies includes, but is not limited to, Russia’s LUKOIL and Gazprom; European Shell,

Eni, Total, OMV; American Schlumberger (the only U.S. company in the list); Chinese Sinopec, CNPC, CNOOC, CNPW; as well as the major companies from Indonesia, Malaysia, Japan, and India.

The popular sentiment among Russian experts and the public was that Russian companies may be the first in line for getting the best deals as a testimony to the developed cooperation between Russia and Iran and the similar stance they take on a number of global and regional issues. Such expectations are right, but only to a certain extent.

Iran has made it clear that it is primarily interested in adopting modern technologies that would push the renovation of its energy industry. This is more than a mere bromide or a put-on sham affirmative attitude inherent in populist political statements. In fact, Iran is used to being independent and self-sufficient while living under sanctions. For instance, an Iranian oil company is the largest tanker owner in the world, managing far more oil tankers than any of its neighboring fellow oil exporters. This allowed Iran to overcome the sanctions that targeted its oil trading activities by prohibiting international banks from insuring oil trade with this country. There is hardly anyone who is more aware of the necessity of making national industries more independent and developed than the current oil minister Bijan Namdar Zangeneh, who, in recent decades, led the most vital national ministries during the hardest periods of Iran’s post-revolutionary history.

There is also no doubt that the investors most welcome are those with strong financial capabilities, who are in position to allocate additional financial support for the projects. It is no coincidence that Japanese and Chinese companies have the best representation in the list of pre-qualified companies: they have sufficient financial capacity to lend money, and more so on strategically important energy projects.

Despite the shortage of cutting-edge technology and comparatively weak financial capabilities, Russia has good chances of winning some profitable contracts in Iran. Drawing from the example of a nearby Iraq, political ties and diplomacy might be of great help to promote the positions of Russian companies in a country. As Fedor Lukyanov rightly put it, Russia should not trade its close ties with Iran for the hypothetical possibility of ameliorating its relations with the United States. This option is unacceptable for both geopolitical and economic reasons. In the end, being present in the oil and gas industry of your competitor is a worthy economic tool. In this context the recent visit of Iranian president Hassan Rouhani to Moscow on March 27-28th seems to bode well for the cooperation between the two states[i].

Back to international investment, it is worth noting that the finalization of upstream deals was impeded by two factors. First is the failure of Iranian legislators and its government to agree on the legal framework for international oil and gas investment. For more than a year and a half, the investors have been waiting for the new type of standardized contracts – IPC (Iranian Petroleum Contracts) to be finalized. No luck so far. The official presentation of the contracts was postponed several times, to September 2016 first, then to spring 2017, and now stymied by the upcoming elections.

RIAC and IRAS Report.Russia-Iran Partnership: an Overview and Prospects for the Future

The second barrier for investment is the still-not-lifted American sanctions. The limitations still preserved are mostly those put by the U.S. government as a reaction to the 1979 Islamic Revolution in Iran, targeting the Iranian Revolutionary Guard. This, in turn, makes international companies operating in Iran wary of the possible American sanctions. To avoid the risks, multinationals have to solicit approval of the U.S. Treasury to do business in Iran. International business, banks in particular, are apprehensive of suffering the same fate as French BNP Paribas, which had to pay a fine of as much as 9 billion U.S. dollars to the U.S. Department of Treasury for doing business with Iran.

Moreover, international companies still struggle to use U.S. dollars in operations with Iran. Teheran often recurs to using other currencies for financial transactions. Reportedly, Iran used euro as the main currency for oil sale to French Total, Spanish Sepsa, and the trading arm of Russian LUKOIL Litasco. Because of the “dollar barrier”, some international corporation have not yet paid their debt to Iranian companies for the oil delivered before 2011. In other cases it is vice-versa, Iranian companies have not yet paid their debts: for instance, Iran still owes Italian Eni.

Besides, Iranian business has to show creativity in finding ways to get access to loans and insurance. At the end of 2016, oil trader Vitol provided Iran a 1 billion U.S. dollar loan against the guarantee of oil supplies, with the more traditional types of insurance being hard to arrange.

However, a much bigger issue than any of those those mentioned above was needed to scare away some of the investors. In January 2017, global energy major BP announced its decision not to pursue its participation in Iranian upstream tenders, allegedly concerned with the possibility of the return of international sanctions. It seems that the decision was well thought-through, as the company had even created a group that was charged with studying the prospects of Iranian contracts. Moreover, the group did not include the head of the company, who holds American citizenship – a move insuring the immunity from the U.S. sanctions.

Iran-US relations on the edgeBy the fall of 2016, it became clear that in the long-run the success of Iranian energy is contingent upon two factors: the policies of the new American administration toward Iran and the results of the Iranian presidential election (to be held in May). These two factors will determine whether the Iranian nuclear deal will be preserved and whether the Iranian economy will still be free of international pressure.

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As of February 2016, one of those variables started to take shape, and though not distinct yet, the indications are definitely negative. Donald Trump’s public announcements are ambiguous and often contradictory, however the make-up of his cabinet does not bode well for Iran. The Pentagon chief James Mattis is strongly against the JCPOA. The same is true about the new CIA Director Mike Pompeo, the Vice President Mike Pence, and the recently resigned Michael Flynn. Secretary of State Rex Tillerson is one of the handful of people who have a rather neutral take on the Iranian deal. The first orders signed by D. Trump reassured the doomsayers of the Iranian deal that the agreement will not last much longer.

Today, the USA is the only signatory of the JCPOA that argues against it. Iran, the EU, Russia, and China have all made it clear that they support the deal in its current form. The head of the EU’s foreign policy, Federica Mogherini, claimed she had personal responsibility to ensure that the agreement is implemented by all sides. She pointed out that it should be taken into account that there are four other parties to the deal except Iran and the USA – the EU, UN, Russia, and China – adding that it is not in U.S. power to unilaterally end the deal. The Wall Street Journal reported quoting unnamed sources that in November-December 2016 the EU sent its representatives to the United States in an effort to convince the newly elected President to preserve the deal.

In Europe it is France that shows the greater willingness to keep the JCPOA. According to Bloomberg, French companies have recently been the biggest European buyers of Iranian oil. France is also eager to get into upstream and midstream projects in Iran. The January visit of a big French delegation to Teheran led by Foreign Minister J-M. Ayrault looked almost like a reaction to the rigid stance towards the Islamic Republic adopted by the USA.

However, as the Carnegie expert K. Adebar has aptly pointed out, whether we like it or not, the survival of the JCPOA depends on the benevolence of only two parties – the administration of the USA and that of the Republic of Iran. The problem is that American actions may affect greatly the political situation in Iran, undermining the position of the Iranian reformists; those who lobbied the JCPOA and supported the return of international investment.

Meanwhile in IranOn May 17th 2017 the Iranians will elect a new president. As a result, a far less Western-world-friendly administration might come to power. The incumbent president, Hassan Rouhani, has already registered his candidacy, yet his return to office is not guaranteed. The conservatives, who traditionally oppose international investment into the national economy, are strong opponents.

Today Iran is working on the liberalization of its legislation, adjusting it to attract international investment. As for the oil and gas laws, the promise is that the new IPC will be more investor-friendly than the formerly used buy-back contracts.

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Apparently, the struggle for the shape and content of the international investment-related legislation is far from over, and it involves a great deal of “bargaining”, both between Iranians and multinationals, and inside the Iranian elite. Let us accentuate that not everyone in Iran is happy with the lifting of sanctions; indeed far from everyone on the conservative side. Most of the conservatives are affiliated with the Iranian Revolutionary Guard, and they advocate a decrease of the rights for international investors, if not their total ban from entering Iranian projects. Highly experienced, influential, and a strong manager, the oil minister B.N. Zangeneh is the most important at playing the role of a mediator between the contesting parties. The fact that this man is in charge of the oil ministry is by all means propitious for international investors. B.N. Zangeneh has always been in favor of international capital coming to Iran, which proves his ability to compromise and his inclination to find solutions. At least as much as this is possible amid the great political pressure he is facing at home.

This is why the recent attacks of the U.S. administration on the Iranian nuclear deal are so perilous and destructive. Not only does it perturb the investors, but it also strengthens the positions of the Iranian conservatives right before the election. The previous time conservatives came to power – in 2005 – the oil and gas sector of Iran entered a new period of degradation caused by the imposed sanctions and an unprecedented increase in the administrative body of the ministry of oil, which incorporated literally thousands of the Iranian Revolutionary Guard members (close to the president M. Ahmadinejad). If the current reformist cabinet spearheaded by president Rouhani, foreign minister J. Zarif, and oil minister B.N. Zangeneh departs from power, the future of the oil and gas sector of Iran might be doomed.

The Iranian government claimed its oil and gas sector needs 180-billion-dollars in investment by 2022. The head of Eni speculated that the Iranians needed 150 billion dollars. Whatever the sum is, it is sure that the energy sector of Iran will not be able to fulfill even half of its great potential without vast international investment.

The analysis leads us to three possible scenarios. Under the first – negative – scenario the USA leaves JCPOA which sparks an antagonistic reaction from Teheran. The return of American sanctions strengthens the position of Iranian conservatives, and all that combined inevitably throws the Iranian economy and its oil and gas sector back to isolation.

Under the second scenario, the USA and Iran stick to the nuclear deal. However, the sense of precarious unpredictability about Iran’s future affects the sentiment of international investors. The long-run repercussions of this scenario are tantamount to that of the first one. Here, the lack of economic development caused by the dubious political situation will drive the resentment among the Iranian population, who had traded the national сrown jewel – its nuclear program – for the economic development that never came. The resentment, once again, will strengthen the conservatives, whose stride will hinder any international investment in the oil and gas sector.

The third, or positive, scenario is possible if international actors put enough pressure on the Trump administration. Russia should take a hard-line attitude and use all the tools available to ensure the compliance of the JCPOA signatories to the terms of the deal. If the agreement survives and the reformists remain in power in Iran, the plan to attract investment to this country is sure to succeed. International business will enter Iranian upstream projects under any oil prices, regardless of the underdevelopment of its infrastructure or the high level of corruption. If only the specter of sanctions is not haunting Iran anymore, the pearl that is the Iranian oil and gas sector will finally reveal itself for the whole world to see.  

[i] No energy deal was signed, though the parties claimed that they touched upon energy-related issues.

March of 2017 was notable for a severe criticism thrown by the US administration accusing Russia of violating the INF Treaty provisions. Paul Selva, the Vice Chairman of the Joint Chiefs of Staff, claimed that Russia had started deploying ground-based cruise missiles posing a direct threat to NATO’s infrastructure in Europe and having technical characteristics inconsistent with the terms of the INF Treaty. John Hyten, the head of the U.S. Strategic Command, supported this statement when he addressed the Congress on April 4th.

Historical Aspects

The INF Treaty was signed by M. Gorbachev and R. Reagan in Washington D.C in 1987 and banned development, production, testing and deployment of all types of ground-based missiles that could travel between 500 and 5,500 km. The Treaty was a result of many years of scrupulous negotiations intended to end the crisis of intermediate-range missiles in Europe. The crisis erupted in 1976 when the USSR, having no other option but to react to the strengthening of the U.S. forward-based system in Europe, started deploying new and more perfect missiles of intermediate range SS-20 “Pioneer”. This, in its turn, provoked an aggressive reaction in the West, with the U.S.A. deploying its own missiles, the “Pershing II” and “Tomahawk”, in Europe. Years of fruitless talks led to a diplomatic impasse that was finally de-blocked during M. Gorbachev’s era, resulting in the signing of the INF Treaty, which Russia is alledgedly currently violating.

AccusationsPaul Selva’s statement was not the first attempt to accuse Russia of breaking its commitments regarding the INF Treaty. The U.S.A. started blaming the Russian Federation for testing a new missile violating the Treaty’s provisions in 2008, with missile SSC-X-8 (9М729) being the main target of criticism. Americans believe that this missile has technical characteristics similar to those of land attack cruise missiles SS-N-27 Sizzler (Kalibr) with a range of about 2,000 km. If this is true, SSC-X-8 (in case it is a ground-based missile) confronts the terms of the Treaty.

For the time being, there is no official data concerning SSC-X-8; thus, now it is quite impossible to say for sure whether the accusations are true.

militaryrussia.ruSS-X-31 (RS-26 “Rubezh”)

Meanwhile, there also has been allegations connected with R-500 ground-based missile (9M728) having a range of 500 km. Currently, those missiles are deployed with some modifications of the short-range ballistic missile system, Iskander. The American party considered these missiles able to travel for a longer distance. However, recently there have been no statements concerning this type of missile.

Finally, the third creation of the Russian military industry that disturbs the U.S.A. is the MIRV-equipped intercontinental ballistic missile SS-X-31 (RS-26 “Rubezh”). Its official range equals about 6,000 km, while the missile is also capable of hitting a target at a distance of 2,000 km. This targeting capability has US officers worried that this missile also violates the INF Treaty.

To sum up, the United States of America had been persistently suspicious of Russia because of the development and tests of three types of ground-based missiles: SSC-X-8 (9M729), R-500 (9M728) and SS-X-31 (RS-26 “Rubezh”). Nevertheless, it was the deployment of 9M729 that turned out to be the turning point that has led to the first official accusation of Russia breaking the INF Treaty ever.

Prove it!Russia’s official stance regarding the accusations is that the provisions of the INF Treaty are being observed and that the U.S.A. should provide evidence to prove their allegations.

Meanwhile, Russia has its own grounds for suspecting the U.S.A. of breaking the INF Treaty. In May, 2016 the Russian Foreign Ministry claimed that the American launchers Mk-41 deployed in Romania and officially designated for SM-3 intercepting missiles may also be used to launch other types of missiles including a cruise missile “Tomahawk”. Therefore, Mk-41 is considered to be a potential launcher for the ground-based cruise missiles banned by the 1987 Treaty. Obviously, the two parties have mutual claims, both denying the violation of the Treaty and continuing to play “diplomatic ping-pong”.

The INF Treaty Is Under Attack. Down a Road Paved with Good Intentions

Do we need the INF Treaty?Will Russia benefit if it decides to withdraw from the Treaty that 30 years ago helped ease tensions between the West and the East and showed a path to new agreements on disarmament? The answer requires the analysis of possible profits and drawbacks of such a decision, including the reaction of the U.S.A. and its allies.

ProsThe post-war period of the twentieth century proved that the nuclear weapon constitutes a safeguard of international security preventing local conflicts from escalating to a global war. This means that the modernization of the nuclear arsenal should be of a great importance in the 21st century.

In this case, the development of new types of missiles (9M728, 9M729, RS-26 “Rubezh” and others) seems to accord with Russia’s interests. Moreover, hypothetically dangerous NATO-held regions that pose a threat to Russian security have moved closer to its borders over the last 30 years. These new missile defense systems deployed around Russia are, officially meant to restrain Iran and North Korea. These actions necessitate that the Russian Federation take effective adequate measures, including the development of new types of weapons able to withstand NATO.

In reality, the modern world is witnessing the transformation of the post-war system of international relations, with its main pillars being destroyed and new ones being erected. In this sense, the INF Treaty may no longer be necessary or relevant.

Cons

Global Development and Nuclear Weapons

No matter how reasonable the abolition of the INF Treaty might seem, it may lead to some negative consequences.

First, it is unlikely that the U.S.A. will stay committed to the Treaty if Russia quits it. In this case, there will be no bars for the U.S.A. from developing and deploying new intermediate-range missiles in Europe. As a result, we will find ourselves in a situation similar to that of 1983, when the need for the INF Treaty emerged.

Second, it may negatively affect the economy. This is because in order to maintain the parity of the intermediate-range forces with the U.S., Russia has to increase significantly its military expenses. The question is simply whether the Russian economy can sustain it.

Third, it is important to take into account the international reaction. European leaders will most likely not welcome the beginning of a new arms race taking place on their territory. The prospect of being again a part of the Russia–U.S. confrontation will completely ruin the already damaged Russia–EU relations.

And so…The Foreign Policy Concept of the Russian Federation issued in 2016 differs from its previous versions in that it does not mention the INF Treaty at all, possibly hinting at the Government’s real stance. At the same time, this, as well as the anti-INF claims of some Russian officials, could simply be a game of diplomacy. On the whole, whatever the real attitude of both sides is, we should admit that the intensifying discourse concerning its points occurring simultaneously with progressive deterioration of the post-war system of international relations indicates a pressing need for the construction of a new international architecture.

Emmanuel Macron and Marine Le Pen: Two Policy Lines for the Fifth Republic may 2, 2017 Мануэль Макрон и Марин…

FULL VERSION OF THE ARTICLE

The first round of the presidential election in France resulted in two leaders obtaining the right to continue their fight for the Elysee Palace. E. Macron has gained support from his former opponents, who dropped out of the race, and is now creating a classical all-party front against the far-right M. Le Pen. While the presidential campaign is always a lot of public-image fighting and is very subjective, the candidates’ program points, which are the true identifiers of objective differences, should be focused on. Moreover, these extremely different points gain in importance during the second round, as the winner will get all levers of power, in both foreign and internal policy lines.

AFPMailys Pinto: 2017 French Presidential Elections: a decisive choice for the improvement of Russian-French relations

An Example of SuccessEmmanuel Macron — the founder of the En Marche! («Forward!») movement, is the rising star of French politics. He became famous countrywide in 2015 as the author of the Macron Law, aiming to boost economic growth and change the situation in the labour market.

Generally, his supporters argue that he possesses some newness and lacks any major scandal involvement, unlike his competitors. At the same time his opponents pay attention to the low numbers in his income statement and find his rapid career development perplexing and likely connected to the Rothschilds' influence.

Key Points in E. Macron’s Program: Realistic or Not?Economy and Finance:

Keep 35-hour legal work week, but let companies negotiate real work hours;

Ban property tax (ISF) for the investor-companies, replace it with immovable property tax (IFI);

Cut corporate tax to 25%;

Provide financial incentives for companies hiring the inhabitants of designated “priority” districts;

Establish a complex €50 billion investment plan in areas such as job training for youth and unemployed (15 billion), and for «green economy» needs (15 billion)

Social Sphere: Decrease the number of civil servants by 120,000 people;

Retain the retirement age of 62 and create universal retirement rules to apply equally to civil servants and employees of the private sector;

Ensure unemployment benefits program;

Increase the autonomy of secondary education institutions, create more «priority educational zones» by increasing the salaries for teachers, reducing class sizes in schools, and hiring up to 5,000 more teachers;

Keep the law the same regarding same-sex marriages and ensure equal rights to minorities and differing genders;

Partially ban the housing tax (refunding in the regional budget to be performed by the state).The former Minister of Economics is likely to follow the path of prudent reforms, developing the points of his own law of 2015.

Serious questions are arising from Macron’s opponents in regard to the social-economic part of the program. The former Minister of Economics is likely to follow the path of prudent reforms, developing the points of his own law of 2015.

Security and Immigration: Keep the jus soli principle and the existing rules of family reunification;

Process political asylum requests faster;

Enforce integration programs for foreigners arriving in France;

Reduce the time required to obtain a “talent” visa – a visa that allows skilled professionals to work in France based on their profession;

Provide help to the migration flow donor-countries;

Guarantee total religious freedom with the necessary respect to the secular Republic;

Re-establish the locally controlled police service (de proximité), reinforce police power by another 10,000 people.

This part is more than just realistic, if one keeps in mind that the system of selective immigration and immigrant integration was implemented in France in 2006 under the Sarcozy Law. No radical measures are suggested against the Muslim population. The «chances for all» slogans and the respect for differences and solidarity will not harshly limit the immigration flow.

Institutional Reforms: Ensure absolute legal compliance of all candidates for any electoral position;

Ban holding office for more than three times in a row for the same mandate;

Decrease the lawmaking process time to one reading in each chamber, decrease the number of senators and deputies;

Employ elements of proportional voting system (starting with the Senate).No radical measures are suggested against the Muslim population. The «chances for all» slogans and the respect for differences and solidarity will not harshly limit the immigration flow.

It is highly likely that such propositions were not inspired by lengthy reflections, but by the way the campaign was going. E. Macron might not want to implement them immediately. Though the candidate promises to transform the political life in the country, no one expects a complete shift away from the system of the Fifth Republic.

Foreign Policy: Ensure further Euro-integration in all possible spheres, enforce European identity;

Continue close cooperation with NATO;

Extend the right of the permanent membership in the UNSC to Germany, Japan, India, Brazil, and one African state;

Continue sanctions against Russia until the Minsk Agreements’ requirements are fulfilled;

Pay special attention to climate change and assist in the development and promotion of human values.

These ideas continue on the basis of F. Hollande’s policy lines — from the European course to the perception of relations with Russia — it means that no efforts must be taken to change the foreign policy course.

By the Will of PeopleMarine Le Pen, the second finalist of the elections, is a widely known politician even abroad. Marine Le Pen turned the Popular Front from an organization with highly toxic ideas into an organization seen as more or less acceptable by the community party of conservative traditionalists. Even if there were many intimidating stories around M. Le Pen, media and other politicians still take her skeptically resulting from the years of her father’s leadership.

Key points in Le Pen’s Program: Realistic or Not?Economy and Finance:

Lead the protectionism policy line, support national manufacturers;

Pull out of Eurozone;

Provide state control over strategically important economic sectors;

Reduce the tax burden for small and middle-sized companies;

Preserve a 35-hour working week, but let industries negotiate real work hours.Marine Le Pen turned the Popular Front from an organization with highly toxic ideas into an organization seen as more or less acceptable by the community party of conservative traditionalists.

Social Sphere: Decrease the retirement age to 60;

Add a principle of national priority to the Constitution, encouraging employers to hire French employees;

Keep the social benefit rights only to the French;

Boost the teaching of the French language, provide half of the curriculum hours in the primary school for learning French;

Focus on regional politics, develop rural areas.

M. Le Pen’s social sphere program points were highly criticized not only by her competitors, but also by scientists. 25 Nobel Prize Laureates in Economic Sciences opposed the anti-European ideas of the Popular Front leader. They warn that unilateral withdrawal from the European Union, Eurozone, and the Schengen space will lead to incalculable consequences for the French economy.

Security and Immigration: Hire 15,000 police and security forces, create 40,000 new prison cells;

Automatically deport any foreign criminal offenders;

Scratch the right of birthplace;

Cut legal immigration to 10,000 a year, limit the family reunification practice;

Pull out of the Schengen accord, re-establish the Customs Service;

Employ a more severe «republican assimilation» of the immigrants instead of their integration.

According to the Ministry of Justice, as of April 1, 2017, French prisons had a total of 58,670 cells (for 70,230 prisoners). Thus M. Le Pen’s promise almost doubles the enlargement of the prison system, which will take a lot of time and money from the budget. Harsh migration policy goes hand-in-hand with the review of France in the EU, while the 10,000 legal immigrants aspect is not justified in the program text.

The EU membership referendum is a vulnerable point in M. Le Pen’s program. This is because in the event of the referendum failing a major share of the propositions in other sections of her program would no longer make sense.

Institutional Reforms: Change the voting system to proportional for every election;

Cut the number of lawmakers at the National Assembly to 300 and Senate to 200;

Cut local administration and shrink the levels of local types of governments by half;

Make citizen-initiated referendums easier to organize, on the initiative of 500,000 citizens;

Extend the Presidential term to seven years without the right to re-election.

These proposals might be realistic if the other parties would support them. However, this is unlikely given that they will not support the proportional voting system (its main beneficiary being the Popular Front) or the cut to the local administrations, which usually bring a lot of mandates to traditional powers (and now to En Marche!).

Foreign Policy: Pull out of NATO military command, increase defense spending (to 3 percent of GDP by

2022, build a new aircraft carrier, increase the number of armed police force by 50,000, extra purchase of French military equipment);

Organize a referendum on France’s European Union membership;

Aim at building a multipolar world, foreign policy based on realism principles;

Strengthen connections with French-speaking countries, provide help to African countries (from education to security and defense).

Purchasing new aircraft, tanks, combat vehicles, and, moreover, an aircraft carrier will seriously increase the cost of the Popular Front leader’s presidential project. The EU membership referendum is a vulnerable point in M. Le Pen’s program. This is because in the event of the referendum failing a major share of the propositions in other sections of her program would no longer make sense.

***The second round of elections in France is the meeting of two extremes. E. Macron will finalize his progressivist, globalist, pro-European program in an attempt to balance the interests of all of his allies. M. Le Pen, on the contrary, will try to preserve the image of the peoples’ candidate and stress the need for civil basics in country governance.

Hard Times for Multivectorism in Post-Soviet Space: Azerbaijan between Russia and the West april 20, 2017 president.az Ilham

Tensions and uncertainty between Russia and the West, primarily with the United States, are dragging on and becoming more vivid — despite earlier predictions of the opposite. All traffic lights are flashing that Moscow and Washington will not quite be able to ameliorate the current situation in the near future. The latest moves of Donald Trump’s White House, particularly the 59 Tomahawk cruise missiles fired upon Syrian targets in Shayrat airbase near Homs on April 7, demonstrate that any hopes for new and real “reset” between Washington and Moscow are short sighted and surreal. That is despite President Trump’s effort to mitigate the situation by tweeting to Russia that “things will work out fine”, or sending a similar message to China — because even the Syrian operation was serving domestic political agenda. What the President’s latest public statements and Rex Tillerson’s Moscow visit show, is that in the short term future the parties agreed to stabilize the negative status quo in bilateral relations until better times come.

Russia’s Political Agenda in the Post-Soviet Space

Not only does the situation create a negative context for bilateral relations between the two countries, but it also significantly affects the dynamics of Washington’s affairs with post-Soviet states who are now forced to make their stance clear with either of geopolitical rivals losing the former luxury of maneuvering and flexibility. Few of those nations — Ukraine and Georgia –made their choice earlier and now bet (or even rely) on the confrontation between Moscow and the West to secure their own financial wellbeing (through assistance, investments and other contributions) and political stability. The choice made transformed the countries into areas of geopolitical rivalry with all negative consequences.

Keeping this lesson in mind, other countries have been doing everything possible to walk the tightrope between Moscow and Western capitals. But the time for multivectorism seems to be running out and — in pursuit of using the lull time more efficiently — the Kremlin is more actively seeking clarity in the neighborhood.

Moldova is a case in point. This country once was on the aforementioned list, but the new President Igor Dodon already paid official visit to Moscow last January, first in ten years, to fulfill campaign promise of alleviating the difficulties faced by many Moldovan migrants in Russia, negotiate the lifting of agricultural embargos, and least doable — pick up on Transnsitrian conflict. President Dodon was also present at the Eurasian Economic Union’s (EAEU) Bishkek gathering on April 14, as Chisinau plans to be the first among those seeking observer-state status in the organization — a major U-turn from the Eastern Partnership pursuits claimed before.

In Armenia this changing spirit of the times was first noticed in summer 2013, when in the face of authoritative study on market gains after signing AA/DCFTA with Brussels and rising hostility in the region, the country’s authorities made a quick decision to drop the “deep and comprehensive” deal and stick with the Kremlin. That timely reaction allowed Yerevan to resume negotiations with Brussels after the dusk was down, and parties are arguably now planning to sign a new framework agreement in the Eastern partnership summit in fall of 2017. That was only three months before the Euromaidan in Kyiv would again upset the political stability in Ukraine. As noted above, after four years of seeking ‘understanding’ and support in Brussels, the political elite in Chisinau is gradually coming to follow Yerevan’s path. For Belarus, Alexander Lukashenko trying to be different — including with the financial support of Ilham Aliyev of Azerbaijan — but it’s becoming obvious that his potential is melting, too. Kazakhstan and other Central Asian nations, with all the baggage of internal conflicts as well as fragile political realities, have for some time been balancing between Moscow and Beijing, and the Kremlin does not seem to consider that worrying for now.

Armenia's Doubts on Russia Ties Prompt Pro-EU Maneuvering

Thus, in the face of unseen since the end of Cold War confrontation in the international scene, with great powers piling up their resources amid greater uncertainties in the future, the much celebrated multivector policies of Ilham Aliyev in Azerbaijan face uneasy times. Previously Baku heavily relied on high oil and gas prices in the market and acclaimed role as European energy security contributor with its 580.000-750.000 barrels of oil per day till late 2015. With current low prices, increasing costs of drilling and thinning resources, Ilham Aliyev fought a short war in April 2016 in Nagorno Karabakh — aiming to build momentum for mounting pressures on Nagorno Karabakh and Armenia, but in vain. As a result, Baku faced the strong and consolidated position of the international mediators aimed to strengthen ceasefire regime, demonstrated during the meetings in Vienna on May 16, 2016 and especially a month later in Saint Petersburg during the presidential summit organized by Vladimir Putin. In response to Moscow’s balanced position in the OSCE Minsk Group-led peace process, anti-Kremlin sentiments in Azerbaijan started gaining traction in public

sector — the media and among politicians (both heavily manufactured). A line of expert commentary, interviews and articles started to surface in the media with claims that Moscow “offended” Azerbaijan and the former shall renew its commitment to securing Ilham Aliyev’s loyalty to win hearts and minds in Azerbaijan.

This is a common posture often adopted by both Ilham Aliyev and Alexander Lukashenko before soliciting loans and other benefits — but that flexibility in relations with Moscow is about to die out.

For the sake of fairness, however, we should note that multivectorism has not always been played well by Azerbaijan. Since early days of independence in 1990s, including under Abdulfaz Elcibey and early years of Heydar Aliyev, Azerbaijan adopted a single vector foreign policy line aimed at developing relations with Turkey as a pathway of integration with the Western world. Accession to the Collective Security Treaty within the CIS in 1994 and, on the other hand, launching oil projects with Western companies did not bring balance either. Even though considerable oil resources could allow a more nuanced foreign policy strategy with Russia and the West (even considering the Turkish factor), in effect that did not happen. By April 1999, Azerbaijan withdrew from the CST, which then became a full-fledged organization, and chose GUUAM grouping in 1997 (established in NATO Washington Summit) as a format of its foreign policy coordination in the post-Soviet space — together with Ukraine, Georgia, Moldova and Uzbekistan.

Azerbaijan and the Four Day War: Breaking the Karabakh Deadlock

A more vivid illustration of only declared, but not lived up commitments to developing relations with Moscow can be traced in conversations of Heydar and Ilham Aliyevs with their American counterparts, found in Wikileaks and other declassified records of United States — which runs against the widespread narrative of enduring strategic partnership of the two countries.

The leaked and declassified U.S. diplomatic records show that both Heydar and Ilham Aliyevs had been speaking against continued Russian engagement in the wider region and advocated for more American involvement. The verbatim record of Heydar Aliyev’s official meeting with former U.S. President Bill Clinton on August 1, 1997, shows how much the Azerbaijani President wanted to please Clinton boasting not only about fine-tuning the weather in Washington that day, but also “making a lot of effort… [for] the U.S. to become a co-chair of the Minsk Group” which to date deals with the Nagorno Karabakh peace process. “We trust you more than anyone”, said Heydar Aliyev to Clinton then, congratulating Clinton on NATO eastward expansion “despite how much Russia shouted”.

It was only two years later that the hybrid regional grouping of GUAM (Georgia, Ukraine, Azerbaijan, Moldova) was announced in the margins of NATO Washington Summit in 1999, a platform that was brought together exclusively on anti-Russian grounds.

Ten years later, in February 2010, now Ilham Aliyev — a much less seasoned diplomat that his later father — went further to use “coarse street slang” to talk about Putin and Medvedev to later argue that the latter was not “a recognised leader” among his subordinates. To contextualise, 2010 saw the peak of then President Medvedev’s personal efforts to find breakthrough on Nagorno Karabakh talks, which President Aliyev flushed in Kazan in June 2011.

Of course, the Azerbaijani leadership has long been running on the basis that the United States would rather organize color revolution on Azeri soil because they have been all under Armenian lobby. In an off-the-record sit-in with Russian journalist Vladimir Solovyov recently, according to the latter, Ilham Aliyev did not show any “adoration” of the United States. To drift the other side, Azerbaijani leadership has been managing the publicaiton of “who lost China”-style op-eds to claim Baku is angry over the poor state of Russia affairs, but that’s only short-term prank games to get higher bid in the market.

Whether or not Azerbaijan will follow the Moldovan suit and file for observer status in EAEU — remains to be seen. But will the Baku’s further “flexibility” be tolerated in Moscow, given that oil reserves are thinning, domestic political crisis is simmering and clan-fights inside the elite are not at all excluded for the last pieces of cake?

China’s Flying Sharks

Sharks from the Black SeaThe history of China’s carrier-based aviation — and of its carrier programme in general — is largely based on developments made in the USSR shortly before its collapse. The first four Soviet Project 1143 aircraft carriers (formally described as aircraft carrying cruisers), which were discussed in greater detail in the first part of this article, were intended for carrying vertical/short take-off and vertical landing (V/STOVL) aircraft. The Soviet engineers proceeded from the premise that U.S. aircraft carriers had qualitatively greater potential in terms of aviation. The only worthy rivals of the U.S. Grumman F-14 Tomcats and McDonnell Douglas F/A 18 Hornets were the MiG-29 and Sukhoi Su-27s.

Ground-based fighters are rarely allocated to the navy (there are many more examples of the reverse process taking place). The flight decks of carriers are too short for conventional fighter jets to take offs. This is where the catapult — the universal method of increasing an aircraft’s take-off speed — comes in. Steam-operated catapults have been widely used since the early 1950s. To stop an aircraft on the flight deck after landing, arresting cables are used. These are stretched across the deck to be caught by the aeroplane’s tail hook. The USSR did attempt to develop catapult designs, but its lack of experience in the field, and the radical changes that the introduction of this technology would imply for the carrier project, meant that the decision was made to build two interim Short Take-Off but Arrested Recovery (STOBAR)-capable ships, with arresting cables and ski jumps. These two carriers, which later proved to be the last Soviet-built aircraft-capable ships, are now known as the Russian aircraft carrier Admiral Kuznetsov and China’s only aircraft carrier to date, the Liaoning. The USSR upgraded its Sukhoi Su-27K and MiG-29K fighters to be able to operate from the carrier deck. The first Su-33 deck landing was performed on November 1, 1989. A small batch of Su-33s was built in the 1990s. It was not until 2012 that carrier-based MiGs were commissioned; the resultant aircraft were miles ahead of the 1980 prototype originally designed for India. Procuring 24 MiG-29 would supply the Admiral Kuznetsov with a balanced air component: the Su-33s are primarily used in an anti-aircraft role, so they do not carry guided air-to-surface munitions, whereas the MiG-29K/KUB fighter can carry a broad range of weaponry. The Russian MiG-29K/KUB fighters commenced

deck operations from the Admiral Kuznetsov in August 2016, and debuted during the carrier’s voyage to the Syrian coast.

chinadaily.com.cnJ-15 designer Luo Yang died on the day that the J-15 fighter jet completed its first successful landing on the Liaoning

Work to expand the array of J-15 weapons will continue in the years to come.

The Chinese made their carrier-based fighter choice back in 1991, though they may not have realized it at the time. The choice was made based on the results of Su-27 and MiG-29 demonstration flights. China went for the Su-27. In light of Beijing's previous orders for Su-27 family fighters, Russia approached the client’s commitment to a naval version of the aircraft with great seriousness: it was largely in China’s interests that abreast-seating configuration of the Su-33UB, which is unusual for fighter jets, was eventually implemented.

In 2004, China chose not to renew its licence to assemble Sukhoi fighters domestically using components from Russia and instead started work to reverse-engineer the model and produce clones with locally designed avionics, engines and weaponry. Had Beijing chosen to prolong its licence, Russia would continue to supply these components. China decided to put the carrier-based fighters into service without any preliminary procedures, even though it had procured a sample for reverse-engineering purposes: around 2001, it purchased one of Ukraine’s remaining Soviet-made Su-33 prototypes. There can be no doubt that Chinese engineers used the aircraft to look at what changes had been made to the airframe as part of the programme to turn the jets over to the navy, including the folding wing and vertical stabilizer, the reinforced landing gear, the tail hook, the canard surfaces, etc. Strangely, the Chinese variant’s canard shape differs somewhat from the original, meaning that the country took the shifted centre of gravity into account rather than just cloning the original aircraft. The Chinese side hardly took any interest in the avionics of the Soviet-built, both because they were dealing with an early prototype and because China had by that time obviously outstripped the Soviets in terms of technological development.

The prototype of the Chinese carrier-based fighter — the Shenyang J-15 Flying Shark — first flew on August 31, 2009. Carrier trials began in 2012. Following numerous touch-and-go runs on the flight deck, on the J-15 performed its first arrested landing on the Liaoning on November 25, 2012. Several more pilots landed on the carrier on the same day, and also performed their first take-offs.

The Future

t.people.com.cn/planavyJ-15 and Z-8 helicopter on Liaoning

One of the most important issues that has to be addressed in order to ensure the effective operation of modern combat aircraft is air-to-air refuelling capability.

Since that time, the Liaoning has regularly taken to sea with its aviation component on board for flying training purposes. Based on the photographs available to date, experts have identified at least 23 J-15 single-seaters by their tactical numbers. Production of these aircraft continues. Two 12-ship squadrons would be enough to form the core of the Project 1143.5/6 carrier’s aviation component: the ship also needs to carry helicopters for a number of auxiliary roles.

In late 2016, Chinese TV showed J-15s launching modern YJ-83K anti-ship missiles. We may conclude that the overall combat potential of the J-15 is comparable to that of the Shenyang J-11B, the Chinese version of the Russian land-based Su-27, with Chinese avionics and weaponry. Work to expand the array of J-15 weapons will continue in the years to come. Like its land-based brethren, the aircraft will likely receive air-to-ground guided munitions and will be able to destroy enemy air defences. This will allow the carrier’s air component to perform missions that are characteristic of modern combat aviation. However, achieving this status will require several additional “instruments.”

One of the most important issues that has to be addressed in order to ensure the effective operation of modern combat aircraft is air-to-air refuelling capability. As the range and endurance of contemporary aircraft continues to grow, so too do the requirements for these parameters. A combat sortie may last for as long as eight to twelve hours, and is restricted by the pilot’s physical ability rather than the aircraft’s performance. China has embraced the experience of the United States and Russia in developing a buddy refuelling system, in which one J-15 can transfer fuel to another in flight. Refuelling tanks have been test-flown, including from the carrier deck, so it is only a matter of time before Chinese naval pilots master the refuelling technique.

weibo.com/u/1720426401J-15S PrototypeRefuelling tanks have been test-flown, including from the carrier deck, so it is only a matter of time before Chinese naval pilots master the refuelling technique.

Another important task is aerial electronic warfare (EW) support for carrier-based aircraft. It is true that fighters can be fitted with integrated or podded electronic countermeasures for individual or even group protection, but the capabilities of such equipment are inferior to those of specialized EW aircraft operated by trained personnel. At present, only the U.S. Navy has carrier-based EW aircraft: the Boeing EA-18 Growler is a derivative of the twin-seat version of the F/A-18F Super Hornet carrier-based fighter. Overall, twin-seaters are just as useful in carrier operations as they are in land-based aviation: they can be used for training purposes and for long-range missions. China understands the usefulness of carrier-based twin-seaters, as demonstrated by the fact that a prototype of the twin-seat J-15S was first spotted on a photograph back in 2013. However, it would seem that this prototype has not yet operated from the Loaoning deck. In addition, people keep confusing the hypothetical J-15S-based EW variant (which no one has seen) with the EW modification of the J-16, the Chinese clone of the Su-30, which is definitely being developed and has been photographed on many occasions. For training purposes, including basic training of new naval pilots, China is developing a carrier-based version of the Guizhou JL-9 aircraft, designated JL-9G. The prototype of this aircraft has already performed test flights from the ski jump of a ground-based test facility, but it remains unclear when it will land on a real carrier deck for the first time. Another important defensive component of a carrier force is airborne early warning (AEW) capability. Apart from being able to deliver a powerful radar to a potentially threatening area, an AEW platform is the only way to detect low-altitude targets in advance. The U.S. carriers have Northrop Grumman E-2C/D Hawkeye for the purpose. In addition to the United States, the only other country that can afford the “luxury” of operating fixed-wing aircraft in the AEW role is France, because aircraft of this class require catapult take-off. Other nations that have aircraft carriers have to make do with AEW helicopters. China attempts to rely on its own strength in this respect: it has developed an AEW derivative of the locally produced Changhe Z-8, a modernized clone of the French Aerospatiale SA 321 Super Frelon helicopter. We may say with certainty that China is also working to develop a fixed-wing AEW platform, but this is probably still in its early stages.

Chinese Military ReviewAEW helicopters Z-8 and Ka-31

In light of the above, the projected composition of the air component for China’s first two carriers, which is to comprise two dozen fighters and around 15 auxiliary aircraft per ship, seems to coincide with the estimate that 40 large airframes would be optimal for Project 1143.6. Any more aircraft per carrier would make flight deck manoeuvres and hangar operations difficult, thus affecting the number of sorties per day.

The Tasks Facing the Chinese Navy Carriers

So why is China spending hefty sums on building its own aircraft carrying fleet? Some of the reasons are quite common, while others are unique to that country.

First, China’s full-fledged ocean fleet operating beyond the range of its coastal aviation currently lacks both the air defence capabilities offered by carriers and their “long arm” intelligence capable of engaging enemy targets outside the range of anti-ship missiles. With carrier-based aviation, China would feel more at ease in the Pacific, and would be able to shift the hypothetical line of confrontation away from its coast.

Second, carriers are a powerful instrument for projecting global military and political force. The first long-distance voyage by a Chinese aircraft carrier strike force — even if just to the Indian Ocean — will certainly get the attention of the international community. It is true that China has never been keen to intervene in conflicts far away from its national borders, but there must be a reason why the Chinese Navy is setting up a supply base in Djibouti.

www.bloomberg.comChina's first aircraft carrier launches

They will help Beijing to significantly strengthen its position in the ongoing territorial disputes in the South China Sea.

Carriers also have roles to play that are specific to China. They will help Beijing to significantly strengthen its position in the ongoing territorial disputes in the South China Sea, which is too far away from the country for its air force to operate comfortably. A carrier could become the core of a naval group that would keep the aircraft and sea-surface ships of other nations at bay and chase enemy submarines.

There is another important mission for the Chinese carriers. The country has finally started sending indigenous nuclear-powered ballistic missile submarines on sea patrols. However, the East China Sea is relatively shallow for such operations. Even more disturbingly, it is populated by U.S. and allied military bases, including bases for anti-submarine warfare aircraft. The Chinese submarines would feel safer in the South China Sea, which is deeper and lies farther away from Japan, South Korea and Guam. In this case, however, they would require greater anti-aircraft and anti-submarine protection, because they would be farther away from home.

China’s efforts to build its Great Fleet continue to impress. It is hard to predict whether the country will manage to keep up this current pace in the future, but Beijing has already forced the international community to sit up and take notice. Russia, for its part, has every reason to observe the process with a mixture of envy and admiration. By sending to sea freshly painted warships built to Soviet specifications, whose flight deck are filled with Sukhoi fighters, Beijing is bringing Russia’s erstwhile plans and dreams to life.