CHAVEZ VISIT TO MOSCOW YIELDS LITTLE BEYOND TALK

C O N F I D E N T I A L MOSCOW 002127

SIPDIS

E.O. 12958: DECL: 07/22/2018
TAGS: PGOV PREL MASS EPET ETRD RU VN
SUBJECT: CHAVEZ VISIT TO MOSCOW YIELDS LITTLE BEYOND TALK

Classified By: Charge d'Affaires Eric Rubin for reasons 1.4 (b) and (d)
.


1. (C) Summary: Russia's self-professed "multivector
diplomacy" and a keen interest in picking Hugo Chavez's
pocket resulted in a full program of meetings on July 22 with
Medvedev and Putin, flanked by an array of senior Russian
officials, even as Russia took steps to lower the profile of
the hyperbolic Venezuelan leader. The Presidents discussed
energy deals, military-technical cooperation, trade, and
infrastructure investment, with Medvedev calling Venezuela an
important partner in regional security, who shared the goal
of making the world more "democratic, just and safe."
Several energy deals were signed, but were focused on joint
studies, not new investments in oil and gas field
development, with companies signing up primarily to keep a
foothold in Venezuela and possibly position themselves to
secure better deals later. Despite press speculation in the
run-up to the meeting, no arms deals were signed. The GOR
was reportedly reluctant to allow Chavez to buy weapons on
credit or to barter oil for them. End Summary.

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A Business Meeting, and Nothing More
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2. (C) Chavez's sixth visit to Moscow produced the expected
high-level program, including separate meetings with Medvedev
and Putin, with each Russian leader flanked by an array of
high-level officials, but was a streamlined affair, with none
of the embellishments (defense company sightseeing, front row
seats at the CIS Informal Summit) associated with earlier
Venezuelan visitations. Experts described the meeting
between Medvedev and Chavez as "business, nothing more."
While Medvedev toasted Russian-Venezuelan growing relations,
praised the partnership as "key" to preserving regional
stability, and described Chavez as an "important partner,"
who shared Russia's goal of making the world more
"democratic, just and safe," the Presidents' press conference
ended abruptly, with no journalists apparently allowed to ask
Chavez any questions. In addition, few reporters were given
access to Maiendorf Castle in the Moscow Region, where the
meeting took place, ostensibly because of a lack of space,
although some experts speculated that the GOR did not want to
give Chavez much opportunity to make his typical anti-U.S.
remarks. Putin's meeting with Chavez received scant press
coverage, with the substantive outcome Putin's agreement (to
an insistent Chavez) to visit Caracas. While many topics
were discussed, such as energy, weapons, trade,
communications, and mining, few substantive deals were
signed.

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Energy Cooperation Deals Signed
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3. (SBU) The reported deals signed by Russian oil companies
TNK-BP, Lukoil, and Gazprom with Venezuela's PDVSA appear to
be less significant than suggested by the media, even though
Medvedev predicted they would lay the foundation for serious
large-scale investment and for developing cooperation in all
areas. The agreements, as outlined by the companies, call
for "joint studies" and "evaluations" and "cooperation," but
do not indicate any imminent major investments or oil and gas
field development. Lukoil's agreement is to study the
potential to produce and refine heavy oil from a specific
block, and runs for two years. It follows a three-year
agreement signed in 2005 to study the same block. The
Gazprom deal is similar and pertains to a different block of
the same region. Gazprom also had a comparable arrangement
from 2005. TNK-BP's deal appears to be the same -- "A Joint
Study Agreement ...to prepare technical and commercial
proposals" for a third block in the same region -- and also
follows up on a previous related MOU. Investment analysts
also saw little value in the reported deals. One called the
agreements "more symbolic than practical" and another
suggested the deals could actually be detrimental, given the
experience of foreign oil companies in Venezuela.


4. (C) TNK-BP's Vice President for International Affairs
Shawn McCormick told us on July 23 that the deal had little
significance. "It just means we signed another piece of
nothing." McCormick believed all three companies were in the
same position, signing agreements to be able to continue a
presence in Venezuela with the hope of gaining an advantage
on future opportunities. He forwarded an email from a
colleague in Venezuela who noted that Lukoil had been trying
for three years to come up with a good project in Venezuela,
but, despite a $40 million annual budget and 10 Russian expat
staff, had little to show yet for its efforts.


5. (C) McCormicks's colleague said that Gazprom's situation
in Venezuela was different from that of Lukoil or TNK-BP in
that the company was already involved in some development and
exploitation work offshore with Petryleos de Venezuela S.A.
(PDVSA). He added that the blessing of the Kremlin and
Chavez yesterday could speed up Russian-Venezuelan projects,
in that it would help mitigate some of the inherent political
risk involved with the major long term investments in
Venezuela.


6. (C) BP came out publicly on the TNK-BP agreement, saying
it "fully supported" the proposal. A BP contact, however,
noting that it's a minor deal, suggested we look at BP's
statement in the context of the battle over TNK-BP, in which
BP's Russian partners accuse it of blocking TNK-BP's
international ventures.


7. (C) Don Wallette, Russia/CIS President of ConocoPhillips
(which owns 20% of Lukoil),told us July 23rd that "this is
just a short-term appraisal program; one of those news-ink
wasting deals that happen to get promoted when leaders get
together." He said ConocoPhillips knows the property being
assessed and is not impressed. Alfa Bank's Chief Strategist
told us July 23rd that the deals "are just so much paper."

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Arms Sales Discussed, But Apparently Not Signed
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8. (C) Despite extensive media reporting that Moscow and
Caracas discussed new arms contracts worth over USD 2
billion, the GOR has not announced any new arms deals and
experts tell us none were signed. Chavez reportedly would
like to purchase 20 Tor-M1 and Tor-M2E midrange antiaircraft
complexes, three or four Project 636 submarines, 12 Il-76 and
Il-78 heavy military transport planes, and 24 Sukhoi fighter
jets, and tanks. Venezuela would also like to purchase
sniper rifles and Igla-S MANPADS, but, according to press
reports, the GOR was concerned with the possible
repercussions from Washington and Bogota should Chavez
transfer these weapons to the FARC.


9. (C) Deputy Editor-In-Chief of the Independent Military
Overview Viktor Litovkin told us the arms deals were not
signed because the GOR was not prepared to extend Venezuela
the credit it would need to make the purchase. Konstantin
Makienko, an expert at the Center for Analysis Strategy and
Technology, told Kommersant that "Moscow should be alarmed
when, with the price of oil at over USD 130 per barrel, a
member of OPEC is buying arms on credit."


10. (C) Izvestia political correspondent Dmitriy Litovkin
told us that Venezuela also floated the idea of trading oil
for arms. Russia could then sell the oil to a third party.
While Venezuela often trades oil for commodities such as
food, Litovkin said the GOR has plenty of its own oil and is
not very interested in such a transaction.

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Comment
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11. (C) Moscow remains unashamed of its relationship with
the Venezuelan strongman and intent on expanding Russian
economic and regional influence, with Medvedev's refusal to
rule out the future formation of an OPEC style gas consortium
indicative of GOR posturing. Nevertheless, Russia took steps
not to give Chavez a platform to take potshots at the U.S.
RUBIN