Russia’s plans to host the Winter Olympics in 2014 in Sochi appear to be melting down!

This week, I followed Russia’s new opposition coalition to the Black Sea City of Sochi where the games are supposed to be staged. Russian hard line leader Vladimir Putins dream may be nothing more than that.

Most of the construction is stalled.
The two top private companies to do the building are nearly bankrupt because of the financial crisis in Russia.

While Russian TV doesn’t show it, two thousand residents have been given notices their homes will be torn down and vow to fight.

Even Russia’s Environment Minister admits the Sochi venues are an environmental disaster in the making.

Putin is now faced with an even bigger challenge. The Russian opposition under the banner of the Solidarity Movement is unifying to fight the Kremlins grip on power and opposition leaders like former world chess champ Garry Kasparov and former Deputy Prime minister during the 90’s Boris Nemtsov will stage that fight in Sochi.  Nemtsov will run for Mayor unless the Kremlin uses dirty tricks to block him.

Nemtsov told me first thing he will do is declare Sochi a no censorship zone allowing free TV and Press. First Sochi will be free and then he says Moscow.

I watched Nemtsov register to run as Mayor and his supporters think the reason the authorities didn’t try to stop him, is because Fox News was there as a witness.

Kasparov says it may be that Putin is losing his control, the Kremlin doesn’t know what to do.
And maybe, just maybe President Medvedev wants to see Putin become weakened.  Kasparov thinks the Medvedev is emerging as a real leader, to let the opposition have some success, as Putin is pushed to the fringe and a new circle of power emerges in Russia without KGB gang that now runs the Country.

Putins authoritarian vertical KGB power structure can arrest and intimidate says the opposition, but it  can’t deal with increasing numbers of Russians who see tough economic times a product of Putins lack luster authoritarian regime which did well when oil prices were sky high and now have little to offer.

Sochi is in trouble, and perhaps the first cracks in Putins power are appearing in his cherished Olympic dream.

The Kremlin is suddenly PR savvy!

For a second week 18 European Countries have little heat because Russia and Ukraine are squabbling over the price of gas and Russia has cut Europe off.

It happens almost every winter.  Russia cuts the gas supply when Ukraine’s contract comes up, Europe suffers and that is  the Kremlins leverage to get what it wants.   (I will have more on what it wants later.)

Russia has been accused of using energy as a weapon of being an unreliable partner to Europe for energy, and frankly most analysts believe that is all true.

But this year Russia wanted to make Ukraine look like the bad guy, so they had all the pieces in place to roll out a PR campaign.   They have hired Ketchum (a Washington PR firm which services the Kremlin – how odd is that?) to massage the Western media into believing  Ukraine is stealing energy, and that Ukraine is solely to blame for the crisis.

Ketchum has distributed Putin’s statements and Gazprom’s and organized conference calls with Russian speakers etc.

Ketchum was also used to help Russia get it’s message out after the crisis with Georgia and to improve Putin’s image.  Putins image is still what it is, terrible in the West,  but for Ketchum the contract is a good one.

Prime Minister Putin’s spokespeople  were also primed ready to roll out the message “this is only about money” not politics, poor little Russia “only wants to be paid fair  market prices for gas and Ukraine keeps stealing the gas” they say.

But we all know this gas crisis started after Ukraine’s Orange revolution and if you want to know the real motives behind the crisis take very seriously the not so subtle hint yesterday made Russia’s State Gas Giant Gazprom.

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I am having lunch with Mikhail Kasyanov, the former Prime Minister of Russia, just across the bridge from the Russian White House where his old boss (Vladimir Putin) now works.

(Putin moved out of the Kremlin this year when he handed the Presidency to his Lt. Dmitri Medvedev, and he took Kasyanovs old title – Prime Minsiter – although everyone understands Putin still runs the Country.)

Kasyavnov tells me “the ruling regime is breaking it’s contract with the elite.”

What he means is vitally important in a country that has the largest nuclear stock pile in the world and is increasingly challenging Americans… again!

The Russian economy is melting down.  There are high level rumors of currency devaluation (the ruble in a nose dive). Behind the scenes, Russians with money are dumping the ruble and buying dollars. In fact, banking insiders say they are going to stop taking dollars in deposit accounts, because they can’t take anymore.

The stock market is down more than 70 percent; billions of dollars are lost.

Sources say that of the 1,500 or so banks in Moscow maybe two dozen will be left standing in the next year. Banks will fail in a big way.

Oil is down, affecting the Kremlin’s ability to spend its way out of this mess.

Capital flight – over 50 billion dollars has been transferred out of Russia in the last month, and Putin recently called in top bankers and ordered them to stop it somehow.  How?

In a country that imports 80 percent to 90 percent of its food, inflation will run 20, 30, even 40 percent next year. People who have jobs are suddenly not being paid on time, and many companies are laying off 20 to 40 percent of their employees.

Russians are used to bad news, but this is seriously bad.

So, what does that mean politically for a regime that appoints its presidents and controls press to the point that the crisis has barely been talked about?

Well, it goes like this.  Putin and his St. Petersburg KGB clan have always had a “contract,” as Kasyanov points out, with the inner and upper circles of Russia.  They could do what they wanted to democracy and human rights and, well, just about anything else while everyone got rich on oil money and corruption.

But now that everyone is getting poor very quickly, or at least falling off the ‘Forbes 500′ list like flies, the contract is broken.

That means the Russian elite are starting to look at this regime in new ways.

So, a financial guru friend of mine here says the winds of change may be blowing down the Moscow River yet again next year. But he also says to remember that when powerful regimes get cornered and are under pressure, they become extra dangerous.

It’s getting to be a dangerous time in Russia now.

I have a submarine in my back yard in Moscow.

Well, it’s not exactly in the backyard… but close. On my morning run I bolt back across the pond, over the railway tracks, and there it is. It’s  some kind of World War II era submarine sitting in a few feet of water as part of a display in Victory Park, celebrating the allied win over Nazi Germany.

I actually did a piece to camera in front of a portion of that submarine eight years ago when the Kursk submarine went down in the Barents Sea. It was tragic.  In 2000, 118 Russian sailors killed when the torpedo section of the Kursk blew up.   The rescue effort was a farce, as old rescue submarines couldn’t hook up to the Kursk’s emergency escape hatches.

So, here we are in 2008 when the Russians announce another tragedy – this time in the Sea of Japan. The Fast attack Akula II submarine Nerpa (means seal in Russian) has had an accidental release of Freon gas – which is used to fight fires. Twenty crew members suffocate. No fire. And not only was the gas inadvertently released, but an alarm that should have sounded to notify the sailors the gas would be released so they could put on breathing masks did not work.

The Nerpa was actually built in 1991.  Then, construction was shelved because the Russians ran out of money.   They then scraped off the rust and put it in the water one week before this accident because India wanted to lease it from them.

Rusty subs and old equipment all date back to Soviet times. So, why should we fear the Russians again?

Well, we shouldn’t.  They are trying to sell weapons, and talking tough is a marketing tool. Hugo Chavez buys it.  No one else does.

They do, of course, have 3000 nuclear warheads we have to think about, but they are not about to push the launch button unless that launch button gets into the wrong hands – that’s a security issue.

But, the Russians have a strategy.  Talk tough, and you get attention.

You see, when they decided to become a normal Western democracy (or something like that) the Bush administration had a plan – ignore them.  Stop these big summits and arms control agreements and let them be.

But the Russians watched their super power status disappear.  They lost respect, and then when it came time for them to fight issues like Missile defense and NATO expansion, where was their muscle?

So, they got the idea if you scare them – they will listen.

America’s new President  should engage the Russians on arms control.  Less nuclear warheads in the world is a good thing.

We should address the need for NATO expansion, or ask ourselves what is the purpose of NATO in Georgia and Ukraine?

We should ease Russian anxiety over missile defense.

We should also pressure the Kremlin on Democracy and Vladimir Putin’s authoritarian control of the Country.

But, we should not fear them.   United States military experts know the Russian military muscle is a bit like that alarm that didn’t work on the Nerpa, or the rescue sub that couldn’t hook up to the Kursk, or that sad old submarine that sits almost in my back yard.   It’s all a symbol of yester-year and tools of the Kremlin’s smoke and mirrors game on how to get attention.

In Baghdad in 2005, when bad was about to get a lot worse, I was called into a briefing by the American Brig. General of 1st armored Division.   He over and over again asked me, “Why are you guys in the media reporting the “big bangs in Baghdad?”  “Security is good,” he would say.   And he claimed there were only about a dozen to 15 terrorist cells in Baghdad with maybe 10 to 20 bad guys in each one.

He was a wonderful  commander when it came to moving armor down the road. A nice guy, who cared for his troops and tried to get it right.   But his assessment of the insurgency was … well … I would say either designed to fool us, or he was fooled badly himself.

So I have learned to be a little more skeptical than I already was, which after a few decades of doing this, was super skeptical to begin with.

So here we are in Afghanistan.   Violence is up 40 percent this summer.   And again, we are being told by the generals, things are going better than you think.  Except for the British Commander who say’s the war can’t be won militarily and has been accused by some of having “risk aversion.”

But here’s what we hear.  Locals say the Taliban have moved back into many provinces. They can hit and run on roads and terrorize the locals.  They are on the edge of Kabul and moving to squeeze it over the winter.

So my talk in the American Embassy with Ambassador William Wood was less about asking clever questions and getting sound bites, than it was an attempt to really understand if this is going right or about to get a lot worse.   This guy was in Colombia. He gets the Narco problem.   He understands insurgencies probably as well as any diplomat or better.

So here’s what I picked up.

- If you’re a terrorist sitting in your cave in Pakistan, the news is probably not good.   The International Community is committed to more money and more troops and those here are staying to fight the fight

- Both candidates in the U.S. election are not saying whether they will put more troops in here, but are only discussing the numbers.

- Roads, construction, are moving forward despite disruptions and that means economic improvements, although a bit slow, but improvements

- A new dam in Helmand will bring more and more power on line, which is important to Afghans where in some villages around Kabul get 2 to 4 hours of power a day.

- Corruption?  Ambassador Wood says ya, oh ya there’s a lot, but President Karzai just put in a new Interior Minister and there is some progress in fighting the dirt in Government and Police. But yes when ministers earn $16,000 annually and the drug dealers will pay 10 times that in bribes, some progress is not a solution.

-Pakistan where the insurgents rest and rearm and train and launch attacks from is waking up understanding terrorism is as much a threat to them as it is to Afghanistan.   Still a lot more has to be done.

- Brits say can’t be won militarily?   The Ambassador says he disagrees with part of the comment because, while the military solution can’t be the only ingredient to all this, it is a fight against an armed insurgency and it is a key front that has to be won. He thing’s we are winning.

Winter is coming.  The Afghan elections next year will be a target of the terrorists trying to paint a bleak picture.  The Saudis ARE brokering some kind of quiet talks with the Taliban, although it’s not what sources would describe yet as “reconciliation talks.”

It’s complicated here.  It’s been a tough year.  But the assessment on the intelligence front from the military is –- progress.

Let’s hope they are reading this right and realistically and not blowing smoke they themselves can’t see through clearly because that’s more dangerous than anything in a war and that’s what this is, a critical war.