Jerusalem

Posted on November 29, 2014November 29, 2014 by Denise Simon

While the talks over Iran’s nuclear program have failed, negotiations have now been extended by seven more months. Eyes have now been turned back to the peace talks between Israel and the Palestinian Authority.

Votes are flying, time limits are being attached and secret back-channel negotiations are no longer secret. Israel is failing to sell their position globally especially to the United Nations and to Europe. Allies of Israel, especially the United States are also working to make a deal to the detriment of the 1967 borders.

PARIS — France’s foreign minister Friday urged the international community to resolve the Israeli-Palestinian conflict within two years, as the French parliament debated whether to recognize a Palestinian state.

“At the United Nations, we are working with our partners to adopt a Security Council resolution to relaunch and conclude talks. A deadline of two years is the one most often mentioned and the French government can agree with this figure,” Laurent Fabius told MPs

***

The Secret Back Channel That Doomed the Israel-Palestine Negotiations

By Amir Tibon

The latest wave of violence in the Holy Land has prompted influential centrist voices in Israel—including former intelligence chiefs and army generals—to call for new peace talks with the Palestinian Authority. But those calling for the revival of the eternal “peace process” admit that the most recent effort, which failed miserably earlier this year, offers some harsh lessons. Since the collapse of talks back in April, many have analyzed why Secretary of State John Kerry fell short of reaching any kind of agreement. One critical fact, however, has been kept hidden until now: a secret communication channel between the private attorney of Israel’s Prime Minister Benjamin Netanyahu and a confidante of Palestinian President Mahmoud Abbas.

The secret channel—reported here for the first time—created substantial progress toward an agreement. But it also had one fundamental flaw, which contributed to the collapse of Kerry’s entire process. Abbas’s supposed representative was in fact holding these talks without a real mandate from the Palestinian President; the concessions he discussed with Molho didn’t represent the President’s views. Parts of this story remain unsolved—most importantly, why this lack of a mandate was missed or ignored in real time. But what can be told is enough to raise some hard questions about Kerry’s effort, and offer important lessons for future attempts at reaching an agreement.

In 2010, Yitzhak (Itzik) Molho, Netanyahu’s attorney and his point man for negotiations with the Palestinians, began to hold secret talks with a person considered very close to Abbas. The New Republic has decided not to publish the identity of this person out of concern for this individual’s security. Peace process veteran Dennis Ross—at the time a special foreign policy adviser to President Obama—was brought into the discussions as well.

Since their first meeting in 2010, Molho and Abbas’s confidante focused on finding common ground—a basis for final status negotiations that both Abbas and Netanyahu could tolerate. Back then, they came up with a formula in which Israel would accept the 1967 borders (with land swaps that would allow it to annex some large “settlement blocs”). In return, the Palestinians would show flexibility regarding Netanyahu’s insistence on recognizing Israel as the nation state of the Jewish people (while clarifying that such recognition would not abridge the rights of Israel’s Arab citizens). This formula, which was discussed but not concluded or agreed upon, included a huge concession from each side—Netanyahu’s representative accepting the same borders Bibi had spent decades rallying against, and Abbas’s supposed representative coming to terms with an Israeli demand that the Palestinian president had rejected time after time, on every possible stage.

Ross tried to make these conversations more prominent with the Obama administration back in 2011, but met with little success. One source in the administration said that except for former national security adviser Tom Donilon, no one was truly interested in this backchannel at the time. Washington wasn’t the only city where the secret channel didn’t incite much excitement. Neither Netanyahu in Jerusalem nor Abbas in Ramallah gave any public sign of accepting the proposed formula. As it became clear no one was interested in their work, Molho and his counterpart reduced the frequency of their meetings.

Things changed in the spring of 2013, when Kerry began a serious push for new peace talks, visiting Jerusalem and Ramallah five times between March and July. As Kerry was laying the ground for an official negotiating track, Molho and his counterpart also renewed their backchannel, with Molho flying in and out of a European capital where the two would meet every few weeks.

Ross had officially quit the Obama administration late in 2011, but he remained involved in talks long after his resignation—even after Secretary Kerry appointed former ambassador to Israel Martin Indyk as his envoy to the official peace talks in July of 2013. Ross had no official mandate when the talks resumed in 2013, but used his personal relationships with Molho, Indyk, and Kerry to weigh influence.

In the early months of the Kerry talks, the official track, led by Indyk, stalled. As Ben Birnbaum and I detailed last summer, arguments, shouting matches, and other distractions dominated the negotiations during this period. Molho, who in addition to pursuing this backchannel was also representing Netanyahu in the official talks, showed little interest in what was being discussed there. His Israeli negotiating partner, Justice Minister Tzipi Livni, and the official Palestinian negotiators, Saeb Erekat and Mohammed Shtayyeh, all expressed frustration over his behavior. “It was clear he thought this wasn’t where the important things were happening,” says a source involved in the talks.

Important things were happening, however, in the secret channel. Molho and his counterpart were busy reconstructing their understanding from 2010, and transforming it into an outline of the terms for serious final status negotiations. Building from the Israeli acceptance of the 1967 borders (with land swaps) and Palestinian flexibility on the “nation state of the Jewish people” (with equal rights for Arab citizens) demand, additional components were added. Molho and Abbas’s confidante discussed the Palestinian refugee problem in depth, and were close to finding a creative wording they thought both sides could accept. On the explosive issue of Jerusalem, the two couldn’t reach an understanding, thus postponing the discussion for later stages of the negotiations.

Kerry, Indyk, and Livni were all aware of the secret channel, and briefed regularly on progress. But Israeli officials believed that the official Palestinian negotiators had no idea about the backchannel. By December 2013, when Molho and his counterpart were finalizing their talks and working on a dramatic understanding that summed up everything they had discussed, a larger problem emerged: The Israelis began to realize that it wasn’t clear if Molho’s counterpart was truly negotiating on behalf of President Abbas.

Late that month, one of Israel’s top newspaper columnists, Nahum Barnea, reported that during Netanyahu’s prior term in office (2009–2012), Molho had a “secret Palestinian contact” with whom he exchanged messages between Abbas and Netanyahu. Barnea didn’t report on the fact that this channel was still active and important—at least in the eyes of senior people in Israel and the U.S.—but the essence of his report was correct. Netanyahu’s office refused to comment, but Abbas was quick to reply, saying in an interview that “there is no secret channel with Netanyahu, and never was one.” He added that the official negotiations led by Indyk are “the only channel of communication I have with Netanyahu.”

On the Israeli side, an argument erupted over the meaning of Abbas’s statement. Some officials started voicing concerns that Abbas truly had no idea about the state of the backchannel talks, or that he knew about them but didn’t consider them to be important. This concern was also shared by senior American officials, including Indyk, who had thought for some time that Abbas and Netanyahu did not see the backchannel in the same light. A Palestinian official close to Abbas claims that, from their very first day back in 2010, the Palestinian president had no interest in these talks: “He never took these talks with Molho seriously.”

The extent of Abbas’s detachment from the secret-channel’s product became clear in early 2014, when Kerry decided to merge the two negotiation tracks. The understanding that had developed through the secret channel was spilled into the discussions that Indyk’s team was holding with both sides over a “framework document.” Netanyahu was willing to work with the fruits of the secret channel (although he insisted on airing his reservations, and the negotiations his advisers held with Indyk over the exact wording were endless). But Abbas completely rejected what had already, supposedly, been accepted by his own negotiator. He wasn’t willing to show any flexibility on the Jewish state issue, and the idea of excluding any clear reference to a Palestinian capital in Jerusalem seemed like political suicide.

The anger Abbas expressed at the American framework caught Kerry by surprise: After all, these were all ideas his supposed negotiator was discussing with Molho. Realizing he had a problem with Abbas, Kerry tried to convince Netanyahu to tilt some of the provisions in Abbas’s direction. But the Israeli Prime Minister was not having it. “We already agreed on these issues in the secret channel,” he told the Secretary, according to a former senior U.S. official. “Bibi is angry at Kerry for opening up understandings that everybody considered a done deal, just because Abbas had changed his mind,” an Israeli Minister told me in February. But a Palestinian official rebuffed this criticism, saying that Abbas never changed his mind on anything: “He was presented with positions that no Palestinian leader could ever accept, and that he personally had spoken out against many times.”

For some, it was always clear that the positions presented by the supposed “Palestinian negotiator” in this secret channel were totally unacceptable for Abbas. Officials involved in the process admit in retrospect that there was too much wishful thinking regarding the backchannel.

A major reason for the skepticism of some people involved in the negotiations toward this backchannel, had to do with Abbas’s ostensible confidante. A number of Israeli, American, and Palestinian officials claimed that it was a miscalculation to assume this person would have authority to make concessions on delicate issues. One senior Palestinian official told me that those in the American and Israeli camps who thought otherwise were “fools.”

If Abbas really was unaware of, or not totally committed to, the backchannel negotiations, what was his “representative” telling Molho? And why did Kerry and Netanyahu treat this channel so seriously, if they had no proof that Abbas had any interest in the proceedings? Perhaps Netanyahu understood that Abbas didn’t know or didn’t care about the backchannel, but decided to keep it going, hoping to bring the negotiations to a point where he could say: “We were willing to make historical concessions, but have found out that we have no partner.” This could explain why some senior Obama administration officials have lately been saying that Netanyahu misled Kerry during the negotiations.

Then again, perhaps Abbas did know what was going on with Molho, but regretted it midway. There is historical precedent for this scenario: In 1993, Abbas held secret negotiations with Israel’s then–Deputy Foreign Minister, Yossi Beilin. The negotiations gave birth to the “Beilin–Abu Mazen Understandings,” the first-ever draft of a final status agreement. But when the document was leaked to the press, Abbas tried to distance himself from it and to minimize its importance. Some Israeli officials believe something similar happened in the last round of negotiations—that after extracting territorial concessions from Israel, Abbas backtracked on any concessions from his side. (The irony of this claim is that Netanyahu had also retreated from the positions presented by Molho in the secret channel, first by insisting on having reservations and later by going back to hardliner positions in the recent months.)

Both scenarios could serve some beautifully written conspiracy theories, but the truth could very well be much simpler: that this blunder was just a terrible misunderstanding. Perhaps what the Israelis considered a serious backchannel, the Palestinians—including their man in the room—saw as merely an unofficial exchange of ideas. Only two people can really solve the mystery, Yitzhak Molho and his negotiating counterpart. Both of them refused to comment.

Ayatollah Rebukes Kerry on Nuclear Talks

Posted on November 28, 2014November 28, 2014 by Denise Simon

The New York Times reported that Khamenei posted a statement on his personal website attacking America but approving of the decision to continue negotiations with world leaders on his country’s nuclear program.

“I do not disagree with the extension of the negotiations, as I have not disagreed with negotiations in the first place,” the ayatollah said in speech published on Khamenei.ir.

Western negotiators – the five permanent members of the United Nations Security Council and Germany (P5+1) – and Iran failed to meet the second deadline for a comprehensive nuclear agreement on Monday, announcing an extension of talks that started last year.

During that time, the parties have operated under an interim agreement that has limited Iran’s production of enriched uranium, imposed stricter international inspections of the current nuclear program and stopped the country from firing up unused centrifuges. In exchange, the United States and European Union have scaled back sanctions on Iran and released portions of frozen assets.

“America is a chameleon, and every day makes new statements,” he said in comments that were to be delivered to an audience of paramilitary Basij forces, according to his website, Khamenei.ir. “It also says different things in public and in private.”

Iran’s Supreme Leader Ayatollah Ali Khamenei, in his first response to the extension of talks over the country’s nuclear program, said world powers have failed to humiliate the Islamic Republic.

“The U.S. and all the European colonialist countries gathered together and tried everything to bring the Islamic Republic of Iran to its knees, but they couldn’t and they never will,” Khamenei said today, according to state-run media.

Diplomats from Iran and the so-called P5+1 group — the U.S., Germany, France, the U.K., Russia and China — gave themselves until March to come up with a political framework and July to spell out technical steps needed for a final accord.

Where does this leave John Kerry and his reputation in Washington for failing to get a deal?

But after having preached patience for a long time, Kerry, the designated defender of the talks, is coming under increasing pressure to deliver an agreement or give up.

Although he has never said a deal with Iran would be easy, Kerry has sometimes raised expectations—as he did in September of last year, when he told “60 Minutes” that a nuclear deal might be reached in less than three to six months.

That was fourteen months ago.

In comments from Vienna Monday, Kerry dangled new hope that a long-term nuclear agreement is close at hand. “[I]n these last days in Vienna, we have made real and substantial progress, and we have seen new ideas surface,” Kerry said, expressing hope that a broad framework could be completed in just four more months.

But administration allies are beginning to worry that Kerry is chasing an ever-moving rainbow’s end.

Shortly after the announcement of the deadline extension, GOP Senate foreign policy figures John McCain, Lindsey Graham and Kelly Ayotte in a joint statement said, “We believe this latest extension of talks should be coupled with increased sanctions and a requirement that any final deal between Iran and the United States be sent to Congress for approval.”

Interestingly, the presidential waiver authorities that are included in the relevant acts have been ratified by the Congress, yet now that Obama is likely to use them, fierce Congressional opposition has emerged.

Under the Joint Plan of Action agreed between Iran and the P5+1, the US should refrain from imposing new nuclear-related sanctions. In January, Obama explicitly threatened a veto on any new Iran sanction bill. Any new sanction bill would be considered as a violation of the JPOA on the part of the United States.

Fading List to Replace Hagel

Posted on November 28, 2014November 28, 2014 by Denise Simon

SecDef Chuck Hagel has an on camera reputation of being slow and lagging in control. But more that comes out since his termination that tells us otherwise. The position of Secretary of Defense is the least sought position in the Obama administration due in part to two wars, the Guantanamo detainee release program and most of all the shrinking budget for defense.

Politico explains why no one wants the job. Then there is the matter of releasing more detainees from Gitmo which is under the full authority of the Pentagon, and Hagel fought back hard under pressure from the White House to apply his signature for releases. More detainees are slated for release, trade or transfer.

Deputy Defense Secretary Work flew to Afghanistan to spend Thanksgiving with the troops and for meetings on the matter of recent Taliban attacks on ISAF. It was only yesterday that the Taliban attacked a NATO base. Matters in Afghanistan are sliding south and the Pentagon officials went to the White House demanding immediate action to prevent a rise in the Taliban and al Qaeda. Simply put a military leadership revolt occurred a few weeks ago such that Obama finally got the message and secretly approved an extended operation in Afghanistan including more aggressive operations.

Sequestration is the biggest threat to protecting national security at home and globally. If sequestration continues, Hagel said last week when he presented his “Strategic Choices and Management Review,” DOD might try to end civilian pensions for retired military troops who work for DOD, or cut unemployment payments.

Carter said changes in pensions, health care and other benefits would likely be grandfathered. Still, a $100 million dollar cut would do damage to DOD and its personnel that officials currently can’t calculate.

The Daesh containment strategy which is to manage the terror group to Iraq and Syria has already failed as Islamic State has moved into North Africa and Libya has fallen.

Little support and attention has been paid to NATO, Poland, Ukraine and the Baltic States except to throw money at building defenses. President Barack Obama, Secretary of State John Kerry and Defense Secretary Chuck Hagel pledged to defend the continent and announced $1 billion in additional military measures aimed at deterring Russia. They also pleaded with NATO members to use their bully pulpits to convince their governments to boost defense spending. U.S. leaders promised that America would fulfill its obligations to protect Europe and urged other NATO members to do to the same. Obama cited the U.S. Article 5 commitment to Poland – referring to the portion of the NATO charter which states that a threat against one nation is a threat against all. “As president, I’ve made sure that the United States is upholding that commitment.”

So who will approve staying on the list to replace SefDef Hagel? There are rumors that include Colin Powel and Tom Donilon, beyond that others are being considered. None of them frankly will have the military in their best interest and national security will likely continue to suffer.

Obama proposed his Pentagon budget for 2015 and it is less than 2014 while the global threat matrix increases. Another matter of great importance is keeping pace of the higher quality, readiness and assets of adversaries of the United States, those countries like China and Russia who are both jointly cooperating in military advancements.

The Irony of Ferguson

Posted on November 26, 2014November 26, 2014 by Denise Simon

In recent days we have watched terrorists in Ferguson burn the town, many of whom were not even from Missouri. Protests in solidarity for Justice for Michael Brown are occurring in cities across the nation including Oakland, Los Angeles, New York, Chicago, Boston and Atlanta.

The protests in Ferguson burned their own community over the Grand Jury decision not to indict Officer Daren Wilson. What is left of Ferguson and what will the future be? Furthermore, testimony and scientific forensic evidence spelled out without dispute that Michael Brown never put his hand in the air, the signature of submission to police orders. If he had, he would clearly be alive today.

The Ferguson Fraud

The bitter irony of the Michael Brown case is that if he had actually put his hands up and said don’t shoot, he would almost certainly be alive today. His family would have been spared an unspeakable loss, and Ferguson, Missouri wouldn’t have experienced multiple bouts of rioting, including the torching of at least a dozen businesses the night it was announced that Officer Darren Wilson wouldn’t be charged with a crime.

Instead, the credible evidence (i.e., the testimony that doesn’t contradict itself or the physical evidence) suggests that Michael Brown had no interest in surrendering. After committing an act of petty robbery at a local business, he attacked Officer Wilson when he stopped him on the street. Brown punched Wilson when the officer was still in his patrol car and attempted to take his gun from him.

The first shots were fired within the car in the struggle over the gun. Then, Michael Brown ran. Even if he hadn’t put his hands up, but merely kept running away, he would also almost certainly be alive today. Again, according to the credible evidence, he turned back and rushed Wilson. The officer shot several times, but Brown kept on coming until Wilson killed him.

This is a terrible tragedy. It isn’t a metaphor for police brutality or race repression or anything else, and never was. Aided and abetted by a compliant national media, the Ferguson protestors spun a dishonest or misinformed version of what happened—Michael Brown murdered in cold blood while trying to give up—into a chant (“hands up, don’t shoot”) and then a mini-movement.

When the facts didn’t back their narrative, they dismissed the facts and retreated into paranoid suspicion of the legal system. It apparently required more intellectual effort than almost any liberal could muster even to say, “You know, I believe policing in America is deeply unjust, but in this case the evidence is murky and not enough to indict, let alone convict anyone of a crime.”

They preferred to charge that the grand jury process was rigged, because St. Louis County prosecutor Robert McCulloch didn’t seek an indictment of Wilson and allowed the grand jury to hear all the evidence and make its own decision. This, Chris Hayes of MSNBC deemed so removed from normal procedure that it’s unrecognizable.

It’s unusual, yes, but not unheard of for prosecutors to present a case to a grand jury without a recommendation to indict. Regardless, who could really object to a grand jury hearing everything in such a sensitive case? If any of the evidence were excluded that, surely, would have been the basis of other howls of an intolerably stacked deck.

It’s a further travesty, according to the Left, that Officer Wilson was allowed to testify to the grand jury. Never mind that it is standard operating procedure. As former prosecutor Andrew McCarthy points out, guilty parties usually don’t testify because they have to do it without their lawyer present and anything they say can be used against them.

It is also alleged that the prosecutor McCulloch is biased because his father was a cop who was killed by a criminal. Follow this argument though to its logical conclusion and McCulloch would be unable to handle almost all cases, because of his engrained bias against criminality.

Finally, there is the argument that Wilson should have been indicted so there could be a trial “to determine the facts.” Realistically, if a jury of Wilson’s peers didn’t believe there was enough evidence to establish probable cause to indict him, there was no way a jury of his peers was going to convict him of a crime, which requires the more stringent standard of beyond a reasonable doubt.

Besides, we don’t try people for crimes they almost certainly didn’t commit just to satisfy a mob that will throw things at the police and burn down local businesses if it doesn’t get its way. If the grand jury had given into the pressure from the streets and indicted as an act of appeasement, the mayhem most likely would have only been delayed until the inevitable acquittal in a trial.

The agitators of Ferguson have proven themselves proficient at destroying other people’s property, no matter what the rationale. This summer, they rioted when the police response was “militarized” and rioted when the police response was un-militarized. Local businesses like the beauty-supply shops Beauty Town (hit repeatedly) and Beauty World (burned on Monday night) have been targeted for the offense of existing, not to mention employing people and serving customers.

Liberal commentators come back again and again to the fact that Michael Brown was unarmed and that, in the struggle between the two, Officer Wilson only sustained bruises to his face, or what Josh Marshall of Talking Points Memo calls an “irritated cheek.” The subtext is that if only Wilson had allowed Brown to beat him up and perhaps take his gun, things wouldn’t have had to escalate.

There is good reason for a police officer to be in mortal fear in the situation Officer Wilson faced, though. In upstate New York last March, a police officer responded to a disturbance call at an office, when suddenly a disturbed man pummeled the officer as he was attempting to exit his vehicle and then grabbed his gun and shot him dead. The case didn’t become a national metaphor for anything.

Ferguson, on the other hand, has never lacked for media coverage, although the narrative of a police execution always seemed dubious and now has been exposed as essentially a fraud. “Hands up, don’t shoot” is a good slogan. If only it was what Michael Brown had done last August.

Putin, Oligarchs, Wealth and More

Posted on November 26, 2014November 26, 2014 by Denise Simon

While there is so much going on globally, in recent weeks very little has been said about Russia, Putin and his aggressions.

Creating global wealth undercover to the masses does not go without recognition to many of the worldwide elite class and Russian collusion is no exception. You may very well know the names and locations. The list is fascinating.

The Russian Foreign Ministry has taken a jab at its U.S. counterpart by uploading a picture of U.S. Secretary of State John Kerry and his predecessors “digging out trenches of the Cold War.”

The loaded comment was made alongside a picture of the politicians holding spades at a construction site, taken last Thursday at a ceremony for a future museum at the U.S. Diplomacy Center in Washington.

“Let’s hope that this is not the mobilization of veterans on digging out trenches of the Cold War,” the Russian Foreign Ministry said Monday on its Facebook account.

Also pictured in the photograph are former state secretaries Hillary Clinton, Colin Powell, Henry Kissinger, James Baker and Madeleine Albright.

Then comes Ukraine and why it has been rather easy for Putin’s aggressions going unchallenged by the West.

SPECIAL REPORT-Putin’s allies channelled billions to Ukraine oligarch

By Stephen Grey, Tom Bergin, Sevgil Musaieva and Roman Anin

MOSCOW/KIEV Nov 26 (Reuters) – In Russia, powerful friends helped him make a fortune. In the United States, officials want him extradited and put behind bars. In Austria, where he is currently free on bail of $155 million, authorities have yet to decide what to do with him.

He is Dmitry Firtash, a former fireman and soldier. In little more than a decade, the Ukrainian went from obscurity to wealth and renown, largely by buying gas from Russia and selling it in his home country. His success was built on remarkable sweetheart deals brokered by associates of Russian leader Vladimir Putin, at immense cost to Russian taxpayers, a Reuters investigation shows.

Russian government records reviewed for this article reveal for the first time the terms of recent deals between Firtash and Russia’s Gazprom, a giant gas company majority owned by the state.

According to Russian customs documents detailing the trades, Gazprom sold more than 20 billion cubic metres of gas well below market prices to Firtash over the past four years – about four times more than the Russian government has publicly acknowledged. The price Firtash paid was so low, Reuters calculates, that companies he controlled made more than $3 billion on the arrangement.

Over the same time period, other documents show, bankers close to Putin granted Firtash credit lines of up to $11 billion. That credit helped Firtash, who backed pro-Russian Viktor Yanukovich’s successful 2010 bid to become Ukraine’s president, to buy a dominant position in the country’s chemical and fertiliser industry and expand his influence.

The Firtash story is more than one man’s grab for riches. It demonstrates how Putin uses Russian state assets to create streams of cash for political allies, and how he exported this model to Ukraine in an attempt to dominate his neighbour, which he sees as vital to Russia’s strategic interests. With the help of Firtash, Yanukovich won power and went on to rule Ukraine for four years. The relationship had great geopolitical value for Putin: Yanukovich ended up steering the nation of more than 44 million away from the West’s orbit and towards Moscow’s until he was overthrown in February.

“Firtash has always been an intermediary,” said Viktor Chumak, chairman of the anti-corruption committee in the previous Ukrainian parliament. “He is a political person representing Russia’s interests in Ukraine.”

A spokesman for Putin rejected claims that Firtash acted on behalf of Russia. “Firtash is an independent businessman and he pursues his own interests, I don’t believe he represents anyone else’s interests,” said Dmitry Peskov.

The findings are the latest in a Reuters examination of how elites favoured by the Kremlin profit from the state in the Putin era. In the wild years after the fall of the Soviet Union, state assets were seized or bought cheaply by the well connected. Today, resources and cash flows from public enterprises are diverted to private individuals with links to Putin, whether in Russia or abroad.

Putin’s system of comrade capitalism has had huge costs for the ordinary people of Russia: By granting special cheap deals to Firtash, Gazprom missed out on about $2 billion in revenue it could have made by selling that gas at market prices, according to European gas price data collected by Reuters. Four industry analysts said that Gazprom could have sold the gas at substantially higher prices to other customers in Europe.

At the same time, the citizens of both Russia and Ukraine have seen unelected oligarchs wield political influence.

Firtash, whose main company, Group DF, describes him as one of Ukraine’s leading entrepreneurs and philanthropists, was arrested in Austria on March 12 at the request of U.S. authorities. The Americans accuse him of bribery over a business deal in India unrelated to events examined in this article. Firtash denies those allegations and is currently free on bail.

Firtash imported the cheap Russian gas through a Cypriot company of which he is sole director, and a Swiss one set up by Group DF. He and Group DF declined to answer questions about those two companies and their gas dealings. A spokesman said Firtash was not available to discuss his business operations, and that Group DF did not wish to comment on “any of the questions you put forth.”

The Kremlin spokesman Peskov said Putin has met Firtash but that they are not close acquaintances. He said Russia supplied gas at “lower prices” to Ukraine because Yanukovich had asked for it and Russia wanted to help Ukraine’s petrochemical industry. Peskov said the deals were arranged through Firtash because “the Ukrainian government asked for it to be that way.”

Yanukovich, who fled to Russia in February after mass demonstrations against his government, could not be reached for comment.

THE MIDDLEMAN

From the moment he first became Russia’s president, Putin moved to take control of his country’s most valuable resource: natural gas. After assuming power in 2000, he replaced the management of Gazprom, put trusted allies in charge, and ensured the Russian state controlled more than half the shares.

The corporate behemoth now supplies about a third of Europe’s gas, generating vital revenue for Russia and giving Putin a powerful economic lever. “Gazprom is very much a tool of Russian foreign policy,” says Rem Korteweg, senior research fellow at the Centre for European Reform. Every major deal that Gazprom signs is approved by Putin, people in the energy industry say.

Putin’s spokesman rejected such assertions: Gazprom, he said, “is a commercial, public company, which has international shareholders. It acts in the interests of its shareholders, which also include the Russian state.”

In normal times, Gazprom’s second biggest customer in Europe is Ukraine; Russian gas was piped directly across the border between the two countries until Russia cut off supplies earlier this year.

In the 2000s, though, Gazprom decided to sell gas not directly to Ukraine’s state gas company Naftogaz, but to intermediaries – in particular Firtash, an international gas dealer who had risen from humble origins.

Firtash grew up in west Ukraine, where his father worked in education and his mother in a sugar factory, according to an account Firtash gave during a meeting with the U.S. ambassador in Kiev in 2008. Both his parents disdained communism and lacked the contacts needed to get their son into university, he said.

He joined the army in 1986, then trained to be a fireman. When the Soviet Union collapsed, leading to Ukraine’s independence in 1991, Firtash found himself having to make a living in an uncertain world, according to his account to the ambassador. With his first wife, he set up a business in west Ukraine shipping canned goods to Uzbekistan, according to local media reports researched by the U.S. embassy.

A U.S. diplomatic cable, which summarised Firtash’s discussion with the ambassador, drily noted: “Due to his commodities business, (Firtash) became acquainted with several powerful business figures from the former Soviet Union.”

According to the cable, Firtash told the U.S. ambassador he had been forced to deal with suspected criminals because at that time it was impossible to do business in Ukraine cleanly. He said he had needed and received permission from a man named Semion Mogilevich to establish various businesses. Mogilevich, an alleged boss of organised crime in eastern Europe, is wanted by the U.S. Federal Bureau of Investigation for an alleged multi-million-dollar fraud in the 1990s involving a company headquartered in the United States. He was indicted in 2003, and described by the FBI in 2009 as having an “extensive international criminal network.”

Firtash has repeatedly denied having any close relationship with Mogilevich. Mogilevich could not be contacted for comment. He has previously denied any wrongdoing or any connection to the gas trade in Ukraine.

By 2002, a company called Eural Trans Gas, registered in Hungary, was transporting gas from Turkmenistan through Russia to Ukraine. Its ownership was unclear, but Firtash represented it. In July 2004, a new company, RosUkrEnergo, became the intermediary for gas deals between Russia and Ukraine. The owners of RUE were unknown at first, but it later emerged that nearly all of the company was owned by Firtash and Gazprom.

RUE bought gas cheaply and sold it on at a higher price in Ukraine and Europe. This arrangement guaranteed profits for RUE and was hugely controversial among Ukrainians who saw RUE as an unnecessary intermediary. Another U.S. diplomatic cable, from March 2009, described RUE as a “cash cow” and a “serious source of … political patronage.” In a website posting, RUE said that in 2007 it sold nearly $10 billion worth of gas and had net income of $795 million.

After Yulia Tymoshenko, herself a former gas trader, became prime minister of Ukraine in 2008, she reacted to public anger about the gas trade and moved to cut Firtash and RUE out of the business. She struck her own gas deal with Putin in 2009.

By that time, Firtash was rich. In the country’s 2010 presidential election, Firtash, by his own admission, aided the pro-Russian Yanukovich. A U.S. diplomatic cable described Firtash as a “major financial backer” of Yanukovich.

“Firtash supported Yanukovich in various ways,” said Vadym Karasiov, an aide to Viktor Yuschenko, Ukraine’s president from 2005 to 2010, in an interview. Karasiov said the mogul used his influence in the media to promote Yanukovich. In April 2010, in the aftermath of the election, Karasiov told the Kiev Post: “Without Dmitry Firtash there wouldn’t have been a (Yanukovich) victory.”

With Yanukovich president, Tymoshenko stepped down as prime minister. Business associates of Firtash were appointed to influential positions in the new administration. He had allies in the corridors of power, and ambitious plans to expand his business empire and get back into the gas trade. His friends in Russia were happy to help him.

THE LOANS

Tucked away in Nicosia, Cyprus, a bundle of tattered papers wrapped in string records Russian credit agreements made to Firtash companies. The documents, reviewed by Reuters, detail a series of financing deals worth billions of dollars.

The deals were arranged by a Russian lender called Gazprombank. Despite its name, the bank is not controlled by Gazprom, which holds only a minority stake. It is a separate business, overseen by people linked to Putin. They include Yuri Kovalchuk, a banker who until March 2014 controlled an investment firm that manages a majority stake in Gazprombank.

In a statement, Gazprombank said: “We do not receive any instructions from the Kremlin … The strategy of the bank is developed by its management board and approved by the board of directors. No other influence is possible.”

Asked whether Putin had any role in issuing the loans to Firtash companies, Kremlin spokesman Peskov said: “Putin, as president, does not have anything to do with this.”

Gazprombank began lending money to Firtash companies soon after Yanukovich took power in Ukraine in February 2010.

In June that year, Firtash established a company called Ostchem Investments in Cyprus. A month later, Gazprombank registered a credit line to the company of $815 million, according to the Cyprus documents. In September, Ostchem Investments bought a 90 percent stake in the Stirol fertiliser plant in Ukraine. It was perfect synergy: Firtash knew the gas business, and natural gas is a major feedstock for making fertiliser.

Further loans and deals with Firtash companies followed.

Reuters found that by March 2011, Gazprombank had registered credit lines of up to $11.15 billion to Firtash companies. The companies may not have borrowed that whole sum, but the documents indicate that loans up to that amount were available, according to Cyprus lawyers.

In the space of seven months in 2011 alone, Firtash acquired control of two more fertiliser plants in Ukraine, Severodonetsk Azot and Rivne Azot. He also bought the Nika Tera sea port, through which fertiliser and other dry bulk goods are shipped. He acquired a lender called Nadra Bank and invested in the titanium processing industry.

Such was his expansion that Firtash became the fifth largest fertiliser producer in Europe. Being a large employer brought not just potential profits but also political clout, he boasted. “We have relations with MPs,” Firtash told Die Presse in Austria in May. “We are big employers in the regions that they represent. Entire cities live on our factories. Election candidates seek our support.”

When asked in 2011 where the money came from to pay for his acquisitions, Firtash was coy. At a press conference called to announce his purchase of the Severdonetsk plant, he declined to name his major lenders. “It’s a secret,” he told Ukrainian journalists.

But a Gazprombank manager told Reuters that the Russian bank had led a consortium of lenders which in 2011 agreed to lend about $7 billion to Firtash. The official said Gazprombank itself lent Firtash $2.2 billion, and that Firtash still owed the bank $2.08 billion. The official declined to name other lenders in the consortium.

A $2.2 billion loan was a big commitment for Gazprombank: It amounted to nearly a quarter of the bank’s total capital, the maximum loan allowed by Russian banking rules for any single client or group. Based on regulatory filings, the loan facility made Firtash the biggest single borrower from Gazprombank.

Reuters was unable to establish exactly how much in total the Gazprombank consortium lent to Firtash companies.

In a statement, Gazprombank said that “the aggregate amount of loans disbursed to Ostchem Group” was “several times lower” than $11 billion. “And all capital requirements and limitations of the Central Bank of Russia in respect of loans granted have always been complied with by Gazprombank, including loans to Ostchem Group,” the statement said.

The bank declined to give any further details, saying it had to protect client confidentiality. The central bank had no comment.

GAS PROFITS

Firtash now had money, political connections and businesses that relied on large supplies of gas. What he needed next was fuel.

In January 2011, Firtash signed an unpublished agreement, seen by Reuters, with Gazprom to buy gas through a company called Ostchem Holding in Cyprus, where he is the sole director listed.

The gas deal was later extended to include sales to Ostchem Gas Trading AG in Switzerland. It was also agreed by Naftogaz, Ukraine’s state-owned gas firm, where Yanukovich had installed new senior management. Firtash needed Naftogaz’s sign-off because it controlled pipelines delivering gas and, until that point, had an exclusive deal to import gas from Gazprom.

Naftogaz’s decision to agree to the deal was an odd one. Not only did it mean Naftogaz would surrender its monopoly on Russian gas imports, but the deal could also potentially damage the state firm. Naftogaz had previously agreed with Gazprom to pay for a set amount of gas whether it could sell it in Ukraine or not. Firtash’s deal could leave the Ukrainian state firm buying gas it would struggle to sell.

Firtash’s return to importing gas became public knowledge after Yanukovich’s election victory. But the price he paid Moscow, and how much cheap gas he bought, remained unclear. An Ostchem spokesman told Reuters the price was “confidential information.”

Russian customs records seen by Reuters show that in 2012, Moscow sold the gas to Firtash for $230 per 1,000 cubic metres (the standard unit used in gas sales). In 2013 the average cost was $267 per unit. Those prices were at least one-third less than those paid by Ukraine’s Naftogaz.

Ukrainian customs documents and corporate filings show that Firtash’s Ostchem companies in Cyprus and Switzerland resold the gas to his chemical plants in Ukraine for $430 per unit. The prices and volumes suggest that the two offshore Ostchem companies made an operating profit of approximately $3.7 billion in two years.

Naftogaz’s current management is highly critical of the way in which Gazprom favoured Firtash’s companies. Aliona Osmolovska, chief of press relations, said: “These special deals for Ostchem were not in the interest of Ukraine.”

The real loser in the deal, though, was Gazprom. The arrangement, which Putin described during a press conference as having been made with the “input of the Russian leadership,” meant Russia sold its gas to Firtash for at least $100 per unit less than it could have made in Western Europe, according to Emily Stromquist, head of Russian energy analysis at Eurasia Group, a political risk research firm.

In addition, the profits from the subsequent resale of the gas were all reaped offshore by companies that did not benefit the Russian taxpayer. Those profits in 2012 and 2013 would have meant an additional $2 billion for Gazprom, whose ultimate majority owners are Russia’s citizens.

Gazprom declined to comment on its sales to Firtash’s companies.

Putin’s spokesman Peskov said Naftogaz agreed to Firtash receiving gas at low prices because the deal was intended to help Ukraine’s petrochemical industry. Asked why the gas was sold to companies in Cyprus and Switzerland, Peskov said: “Putin doesn’t need to approve this action. These operations are technical and were made by Gazprom according to the structures which are always used by its Ukrainian partners.”

Neither of the two Firtash companies that bought gas from Russia publishes accounts. Firtash declined to comment on the firms or their results.

UNEASY STANDOFF

The new government in Ukraine alleges that Yanukovich had allowed corruption to flourish and stolen millions of dollars. In the longer term, the new government says it wants to forge closer ties with the European Union and reduce its dependence on Russian gas.

In June, Moscow cut off supplies of gas to Kiev, claiming that it was owed billions of dollars by Ukraine’s state-owned Naftogaz. Late last month, the two countries struck a deal allowing supplies to resume, but the agreement runs only until March. Firtash retains large stocks of gas but has not imported new supplies since Yanukovich was ousted.

Firtash remains in Austria awaiting the outcome of extradition hearings. According to a U.S. indictment unsealed in April, he is suspected of a scheme to bribe Indian government officials to procure titanium. Two U.S. government officials said the American investigation into Firtash is continuing; they declined to give further details.

The Ukrainian oligarch has said the allegations are “without foundation” and has accused Washington of acting for “purely political reasons.” He has hired an all-star legal defence team. It includes Lanny Davis, who helped President Bill Clinton weather a series of White House scandals in the 1990s.

In his time of trouble Firtash has not been deserted by the Russians. Since his arrest he has received another loan in order to pay his bail: $155 million from Vasily Anisimov, the billionaire who heads the Russian Judo Federation, the governing body in Russia of Putin’s beloved sport.

“I have known Mr. Firtash for a number of years, though he is neither my friend nor business partner,” Anisimov told Reuters in an email. “I confirm that I loaned 125 million euros to him. This was a purely business transaction.” (Additional reporting by Michele Kambas in Cyprus, Elizabeth Piper and Jason Bush in Moscow, Oleksandr Akymenko and Pavel Polityuk in Kiev, Jack Stubbs in London, Warren Strobel in Washington and Michele Martin in Berlin; Edited by Richard Woods and Michael Williams)