Summary:

             NATO continued its policy of trying to turn a compromise into a
             victory.  In order to do that, it has been necessary to treat
             Russia as if its role was peripheral.  It was a policy bound to
             anger Russia. It was not a bad policy, if NATO were ready and able
             to slay the bear.  But goading a wounded bear when you are not in a
             position to kill him is a dangerous game.  On Saturday morning, the
             bear struck back.  NATO still hasn't gotten him back in his cage.

             Analysis:

             President Bill Clinton had a sign taped to his desk at the
             beginning of his first term in office that read, "It's the Economy,
             Stupid." He should have taped one on his desk at the beginning of
             the Kosovo affair that said, "It's the Russians, Stupid."  From the
             beginning to the end of this crisis, it has been the Russians, not
             the Serbs, who were the real issue facing NATO.

             The Kosovo crisis began in December 1998 in Iraq.  When the United
             States decided to bomb Iraq for four days in December, in spite of
             Russian opposition and without consulting them, the Russians became
             furious.  In their view, the United States completely ignored them
             and had now reduced them to a third-world power - discounting
             completely Russia's ability to respond.  The senior military was
             particularly disgruntled.  It was this Russian mood, carefully read
             by Slobodan Milosevic, which led him to conclude that it was the
             appropriate time to challenge the West in Kosovo.  It was clear to
             Milosevic that the Russians would not permit themselves to be
             humiliated a second time.  He was right.  When the war broke out,
             the Russians were not only furious again, but provided open
             political support to Serbia.

             There was, in late April and early May, an urgent feeling inside of
             NATO that some sort of compromise was needed.  The feeling was an
             outgrowth of the fact that the air war alone would not achieve the
             desired political goals, and that a ground war was not an option.
             At about the same time, it became clear that only the Russians had
             enough influence in Belgrade to bring them to a satisfactory
             compromise.  The Russians, however, were extremely reluctant to
             begin mediation.  The Russians made it clear that they would only
             engage in a mediation effort if there were a prior negotiation
             between NATO and Russia in which the basic outlines of a settlement
             were established.  The resulting agreement was the G-8 accords.

             The two most important elements of the G-8 agreement were
             unwritten, but they were at the heart of the agreement.  The first
             was that Russia was to be treated as a great power by NATO, and not
             as its messenger boy.  The second was that any settlement that was
             reached had to be viewed as a compromise and not as a NATO victory.
             This was not only for Milosevic's sake, but it was also for
             Yeltsin's.  Following his humiliation in Iraq, Yeltsin could not
             afford to be seen as simply giving in to NATO.  If that were to
             happen, powerful anti-Western, anti-reform and anti-Yeltsin forces
             would be triggered.  Yeltsin tried very hard to convey to NATO that
             far more than Kosovo was at stake.  NATO didn't seem to listen.

             Thus, the entire point of the G-8 agreements was that there would
             be a compromise in which NATO achieved what it wanted while
             Yugoslavia retained what it wanted.  A foreign presence would enter
             Kosovo, including NATO troops.  Russian troops would also be
             present.  These Russian troops would be used to guarantee the
             behavior of NATO troops in relation to Serbs, in regard to
             disarming the KLA, and in guaranteeing Serbia's long-term rights in
             Kosovo.  The presence of Russian troops in Kosovo either under a
             joint UN command or as an independent force was the essential
             element of the G-8.  Many long hours were spent in Bonn and
             elsewhere negotiating this agreement.

             Over the course of a month, the Russians pressured Milosevic to
             accept these agreements.  Finally, in a meeting attended by the
             EU's Martti Ahtisaari and Moscow's Viktor Chernomyrdin, Milosevic
             accepted the compromise.  Milosevic did not accept the agreements
             because of the bombing campaign.  It hurt, but never crippled him.
             Milosevic accepted the agreements because the Russians wanted them
             and because they guaranteed that they would be present as
             independent observers to make certain that NATO did not overstep
             its bounds.  This is the key: it was the Russians, not the bombing
             campaign that delivered the Serbs.

             NATO violated that understanding from the instant the announcement
             came from Belgrade.  NATO deliberately and very publicly attacked
             the foundations of the accords by trumpeting them as a unilateral
             victory for NATO's air campaign and the de-facto surrender of
             Serbia.  Serbia, which had thought it had agreed to a compromise
             under Russian guarantees, found that NATO and the Western media
             were treating this announcement as a surrender.  Serb generals were
             absolutely shocked when, in meeting with their NATO counterparts,
             they were given non-negotiable demands by NATO.  They not only
             refused to sign, but they apparently contacted their Russian
             military counterparts directly, reporting NATO's position.  A
             Russian general arrived at the negotiations and apparently presided
             over their collapse.

             Throughout last week, NATO was in the bizarre position of claiming
             victory over the Serbs while trying to convince them to let NATO
             move into Kosovo.  The irony of the situation of course escaped
             NATO.  Serbia had agreed to the G-8 agreements and it was sticking
             by them.  NATO's demand that Serbia accept non-negotiable terms was
             simply rejected, precisely because Serbia had not been defeated.
             The key issue was the Russian role.  Everything else was trivial.
             Serbia had been promised an independent Russian presence.  The G-8
             agreements had said that any unified command would be answerable to
             the Security Council.  That wasn't happening.  The Serbs weren't
             signing.  NATO's attempt to dictate terms by right of victory fell
             flat on its face.  For a week, NATO troops milled around, waiting
             for Serb permission to move in.

             The Russians proposed a second compromise.  If everyone would not
             be under UN command, they would accept responsibility for their own
             zone.  NATO rejected this stating Russia could come into Kosovo
             under NATO command or not at all.  This not only violated the
             principles that had governed the G-8 negotiations, by removing the
             protection of Serb interests against NATO, but it also put the
             Russians into an impossible position in Belgrade and in Moscow.
             The negotiators appeared to be either fools or dupes of the West.
             Chernomyrdin and Ivanov worked hard to save the agreements, and
             perhaps even their own careers.  NATO, for reasons that escape us,
             gave no ground.  They hung the negotiators out to dry by giving
             them no room for maneuver.  Under NATO terms, Kosovo would become
             exactly what Serbia had rejected at Rambouillet: a NATO
             protectorate.  And now it was Russia, Serbia's ally, that delivered
             them to NATO.

             By the end of the week, something snapped in Moscow.  It is not
             clear whether it was Yeltsin who himself ordered that Russian
             troops move into Pristina or whether the Russian General Staff
             itself gave the order.  What is clear is that Yeltsin promoted the
             Russian general who, along with his troops, rolled into Pristina.
             It is also clear that although Foreign Minister Igor Ivanov had
             claimed that the whole affair was an accident and promised that the
             troops would be withdrawn immediately, no troops have been removed.
             Talbott then flew back to Moscow.  Clinton got to speak with
             Yeltsin after a 24-hour delay, but the conversation went nowhere.
             Meanwhile, Albright is declaring that the Russians must come under
             NATO command and that's final.

             The situation has become more complex.  NATO has prevailed on
             Hungary and Ukraine to forbid Russian aircraft from crossing their
             airspace with troops bound for Kosovo.  Now Hungary is part of
             NATO.  Ukraine is not.  NATO is now driving home the fact that
             Russia is surrounded, isolated and helpless.  It is also putting
             Ukraine into the position of directly thwarting fundamental Russian
             strategic needs.  Since NATO is in no position to defend Ukraine
             and since there is substantial, if not overwhelming, pro-Russian
             sentiment in Ukraine, NATO is driving an important point home to
             the Russians: the current geopolitical reality is unacceptable from
             the Russian point of view.   By Sunday, Russian pressure had caused
             Ukraine to change its policy.  But the lesson was not lost on
             Russia's military.

             Here is the problem as Stratfor sees it.  NATO and the United
             States have been dealing with men like Viktor Chernomyrdin.  These
             men have had their primary focus, for the past decade, on trying to
             create a capitalist Russia.  They have not only failed, but their
             failure is now manifest throughout Russia.  Their credibility there
             is nil.  In negotiating with the West, they operate from two
             imperatives.  First, they are seeking whatever economic concessions
             they can secure in the hope of sparking an economic miracle.
             Second, like Gorbachev before them, they have more credibility with
             the people with whom they are negotiating than the people they are
             negotiating for.  That tends to make them malleable.

             NATO has been confusing the malleability of a declining cadre of
             Russian leaders with the genuine condition inside of Russia.
             Clearly, Albright, Berger, Talbott, and Clinton decided that they
             could roll Ivanov and Chernomyrdrin into whatever agreement they
             wanted.  In that they were right.  Where they were terribly wrong
             was about the men they were not negotiating with, but whose power
             and credibility was growing daily.  These faceless hard-liners in
             the military finally snapped at the humiliation NATO inflicted on
             their public leaders.  Yeltsin, ever shrewd, ever a survivor,
             tacked with the wind.

             Russia, for the first time since the Cold War, has accepted a
             low-level military confrontation with NATO.  NATO's attempts to
             minimize it notwithstanding, this is a defining moment in post-Cold
             War history.  NATO attempted to dictate terms to Russia and Russia
             made a military response.  NATO then used its diplomatic leverage
             to isolate Kosovo from follow-on forces.  It has forced Russia to
             face the fact that in the event of a crisis, Ukraine will be
             neither neutral nor pro-Russian.  It will be pro-NATO.  That means
             that, paperwork aside, NATO has already expanded into Ukraine.  To
             the Russians who triggered this crisis in Pristina, that is an
             unacceptable circumstance.  They will take steps to rectify that
             problem.  NATO does not have the military or diplomatic ability to
             protect Ukraine.  Russia, however, has an interest in what happens
             within what is clearly its sphere of influence.  We do not know
             what is happening politically in Moscow, but the straws in the wind
             point to a much more assertive Russian foreign policy.

             There is an interesting fantasy current in the West, which is that
             Russia's economic problems prevent military actions.  That is as
             silly an observation as believing that the U.S. will beat Vietnam
             because it is richer, or that Athenians will beat the poorer
             Spartans.  Wealth does not directly correlate with military power,
             particularly when dealing with Russia, as both Napoleon and Hitler
             discovered.  Moreover, all economic figures on Russia are
             meaningless.  So much of the Russian economy is "off the books"
             that no one knows how it is doing.  The trick is to get the
             informal economy back on the books.  That, we should all remember,
             is something that the Russians are masters at.  It should also be
             remembered that the fact that Russia's military is in a state of
             disrepair simply means that there is repair work to be done.  Not
             only is that true, but the process of repairing the Russian economy
             is itself an economic tonic, solving short and long term problems.
             Military adventures are a psychological, economic and political
             boon for ailing economies.

             Machiavelli teaches the importance of never wounding your
             adversaries.  It is much better to kill them.  Wounding them and
             then ridiculing and tormenting them is the worst possible strategy.
             Russia is certainly wounded.  It is far from dead.  NATO's strategy
             in Kosovo has been to goad a wounded bear.  That is not smart
             unless you are preparing to slay him.  Since no one in NATO wants
             to go bear hunting, treating Russia with the breathtaking contempt
             that NATO has shown it in the past few weeks is not wise.  It seems
             to us that Clinton and Blair are so intent on the very minor matter
             of Kosovo that they have actually been oblivious to the effect
             their behavior is having in Moscow.

             They just can't get it into their heads that it's not about Kosovo.
             It is not about humanitarianism or making ourselves the kind of
             people we want to be.  It's about the Russians, stupid!  And about
             China and about the global balance of power.