Algeria trades oil rights for Russian arms

By Carmen Gentile for ISN Security Watch (20/04/06)

Algeria has decided to spend some of its recent oil and gas fortunes on an array of Russian weapons including MiG fighter planes and other military gadgetry.

In return, Russia has earned the rights to Algeria’s lucrative oil and gas reserves in a deal some consider crucial to the former Soviet Union’s aspirations to become a world leader in the gas industry.

During a trip to Algiers last month, Russian President Vladimir Putin finalized a deal by which Algeria will purchase US$7.5 billion worth of fighter planes, other aircraft, and updates for its current fleet of MiG fighters, and in exchange give Russian oil giant LUKoil and state-run gas giant Gazprom access to some of North Africa’s most bountiful oil and gas fields.

Russia will reportedly deliver 36 MiG 29SMT fighters, 28 Su-30MK interdiction aircraft, and 16 Yak-130 Mitten combat trainers, as well as upgrade 36 older MiG-29s, and provide ground-based radar systems and training for technicians and pilots.

The deal also stipulates that Moscow will write off an old debt totaling more than US$4.7 billion dating back to the old Soviet regime, which was a major supplier of arms to Algeria until its collapse at the beginning of the 1990s.

During an eight-year war for independence with France (1954-1962) that cost some 350,000 Algerian lives, the former Soviet Union was the country’s main arms supplier. Back then, Algeria was a strategic nation for undermining the authority of NATO ally France and asserting the Soviet presence in the region.

While the first visit by a Russian leader to Algeria went largely unnoticed in western circles, it did raise some eyebrows in Washington, where US State Department officials made certain to attain more details of the deal from both their Russian and Algerian counterparts.

More than a month later, the details of the deal have still not been made public. “Algeria and Russia reached an agreement on writing off Algeria's debts to Russia, which are estimated at US$4.7 billion. In return for this, Algeria agreed to buy goods and services from Russia to a value equaling the amount of these debts," read a statement from the government of Algerian President Abdelaziz Bouteflika after his closed-door meeting with Putin in March.

What appears clear, however, is Russia’s burgeoning intent to become a major global player in the gas market.

Gazprom, which is set to hold a public offering of its shares, is intent on becoming the “Saudi Arabia of the gas industry”, Stephen Blank, a professor of National Security Studies at the War College and Russia expert, told ISN Security Watch.

If that is Gazprom's plan, then Algeria is quite possibly the best place to do it. The one-time French colony, which struggled through a bloody Islamic uprising in the 1990s that claimed upwards of 200,000 lives, has been awash with oil and gas revenue the last few years.

The gas industry has been particularly good to Algeria. The country boasts the world’s eighth largest reserves - an estimated 160.5 trillion cubic feet - and is the US’ second largest supplier after Saudia Arabia.

Rising fuel costs attributed to the continuing war in Iraq and terror threats have been a boon for Algeria. Last year, the country’s gross domestic product (GDP), almost exclusively dependent on the fossil fuel market, rose 5.2 per cent from 2004. And for 2006, it is expected to reach 6.4 per cent, according to estimates by the US Energy Information Administration.

And while a large portion of its recent economic success is attributed to Algeria’s oil output - about 1 million barrels per day - its abundant gas reserves are the country’s real cash cow, Mohammed Akacem, a professor of economics at Metropolitan State College of Denver, told ISN Security Watch.

"It’s a lot more lucrative in the long run on the gas front,” said Akacem.

Still, the US is spending about US$10 billion annually on Algerian oil and is likely to buy more in the coming years, noted Brad Dillman, a former scholar at the Middle East Institute and an assistant professor of international political economy at the University of Puget Sound in Washington.

The influx of cash has given Bouteflika - who many credit for Algeria’s recent economic success by clamping down on Islamic militancy following his election in 1999 - the room to spend on extravagances like a few dozen new fighter planes and other armaments for the Algerian military.

“It’s a way of incurring favor with the military,” said Dillman, noting the role the military played in implementing the Algerian leader’s crackdown on militants, thus paving the way for Algeria’s recent windfall of oil and gas revenue. “He’s got the money, so why not?”

Just over six weeks ago, Algeria implemented a controversial amnesty program for militants to lay down their arms. So far, 80 of them have reportedly turned in their weapons and forsaken the fight.

Meanwhile, the government has released almost 2,700 imprisoned militants as part of its amnesty program.

Algerian officials estimate there are still another 800 active and armed militants in the country. While that number pales in comparison to the ranks of militants that wreaked havoc on Algeria in the 1990s, they remain a potent force in the country. Earlier this month, a group of militants who rejected the amnesty offer shot and killed 13 custom officers.

The extra aircraft and other arms, said some analysts, would most certainly be used to combat those militants who refuse to lay down their weapons, as Algeria is currently focusing most of its attention on internal matters, no longer concerning itself with supporting groups like the Western Sahara’ Polisario Front the way it did until the late 1980s.

“I don’t see anything immediately happening in the North Africa theater,” said Blank.

And though support in Algeria for a theocratic state based on sharia law “is a lot weaker”, noted Dillman, the threat of militant activity persists. “It’s a pretty serious legacy that many [Algerians] are still not over […] the whole country was just horrified with what’s happened there in the last ten years or so,” he added.

It is a legacy that Bouteflika and Algeria apparently have not forgotten and have chosen to arm for in case the worst is not quite over.