July 20, 2007

Analysis : Russia expels four U.K. diplomats in tit for tat

16:41 | 20/ 07/ 2007



MOSCOW. (RIA Novosti economic commentator Mikhail Khmelev) - Four British diplomats are to be expelled from Russia, the country's Foreign Ministry said Thursday.

The move mirrors the U.K.'s expulsion of four Russian diplomats over Moscow's refusal to extradite a murder suspect. Russia is also halting joint counterterrorism efforts with Britain.

Although Moscow has repeatedly said it does not want the conflict to escalate beyond diplomatic pinpricks, it is unclear whether London will resort to additional sanctions or whether the current stand-off will turn into an economic war.

It took Russia just a couple of days to make a "targeted and adequate reaction" to the British Foreign Office's statement announcing the expulsion of the Russian diplomats, the introduction of a tougher visa regime and the suspension of negotiations with Moscow on streamlining visa-application procedures.

It appears that Russia's decision to halt cooperation with British security agencies was a hasty one, because apart from investigating the mysterious death of former Russian spy Alexander Litvinenko, such cooperation includes efforts to combat terrorism, illegal migration and drug trafficking.

In response, British newspapers may run headlines such as "The Evil Empire Strikes Back," and political commentators are likely to tell their audiences that London must not flinch and must promptly retaliate. Whitehall is therefore likely to aggravate the conflict for lack of pragmatism and restraint.

U.K. Minister for Europe Jim Murphy told the House of Commons Select Foreign Affairs Committee that London had no intention of imposing additional sanctions against Russia and all but refuted a statement by Foreign Secretary John Miliband that subsequent action would be taken after the expulsion of the diplomats.

Russian and British companies would suffer if the British Foreign Office does not behave reasonably. However, the current diplomatic war has so far had no impact on economic relations between Moscow and London. Businessmen, students and tourists remain unaffected by the latest visa restrictions.

Even if the sides reach an agreement on the visa issue, it will still be difficult for ordinary Russians to travel to the U.K. because the current talks only cover certain categories, namely, journalists, athletes and scientists. Russia and the European Union recently introduced a visa regime similar to the one being discussed with Britain.

However, an all-out economic war could still erupt in the next few weeks. The recent chill in relations could make things difficult for Russian companies in London and vice versa because the Kremlin has enough leverage to persuade Russian businessmen to leave the United Kingdom. Moreover, British companies could heed Tony Blair's call to curtail operations in Russia.

Such a move, however, would affect everyone because the U.K. and Russia are basically allies, rather than opponents, and because Britain is Russia's tenth biggest trade partner. Their bilateral trade turnover reached $14 billion last year, with Russian energy exports to the U.K. accounting for only a fraction of this total. Moreover, 400 British companies operate in Russia's consumer and service sectors, and direct British investment in the Russian economy was $3.1 billion in January-March 2007, bringing total investment to $60 billion.

Experts are saying that Russian companies may refuse to hold IPOs on the London Stock Exchange, and that they should float their stocks and bonds on domestic bourses instead. However, no Russian stock exchange can raise as much capital as the LSE.

In spite of all the hostile language, the mutual expulsion of eight diplomats is not enough to curtail multi-billion-dollar business operations. The conflict will most likely peter out over the next several months, as the British and Russian establishments will focus on new problems and threats.

It would, however, be imprudent to underestimate the short-term political risks the dispute poses to bilateral relations. Businessmen from both countries will now be keeping an eye on the Litvinenko affair as a potential source of future quarrels between the two countries.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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