What BP Has to Fear
Why are we hearing BP chairman Peter Sutherland accuse his Russian partners of being thieves? Is the latest oil drama in Moscow truly a rough, 1990s-style grab for assets, as BP has cast its dustup with the Russian oligarchs Mikhail Fridman, Viktor Vekselberg and Len Blavatnik?The short answer seems to be no.
On the first question, BP's public indignance appears to reflect an understanding that it faces a threat not just to its Russian assets, which comprise a third of the company's entire worldwide reserves, but to control of BP itself. And in the second case, the oligarchs have stated -- and I think it's true -- that they simply disagree with how BP has managed their joint company, called TNK-BP. As 50% owners of the company, they want a greater say in its operation, including an expansion overseas. And they want the current CEO, Robert Dudley, to be sacked.
BP could simply accede to these demands, and get on with business. That doesn't currently seem likely, one reason being that Sutherland could have difficulty climbing down after taking the altercation so personally.
Short of such a concession, one finds two potential outcomes, neither of them pleasant for BP:
In the worst case (for BP), the largest single block of its own shares -- about 10% of them -- will come to be owned by the four Russian oligarchs. That is one suggestion by the oligarchs -- that the dispute be settled by an exchange of their TNK-BP shares for BP shares. In this scenario, BP has said that it would sell control of TNK-BP to a Russian state company, probably Gazprom or Rosneft. The takeaway from this outcome is BP culture could be forced to change by such assertive new shareholders. Imagine Carl Icahn on steroids.
In the less unfavorable outcome, BP would cut its losses and sell out its half-interest in TNK-BP. The buyer again would be either Gazprom or Rosneft, and the price would be far less than the generally quoted market value of $20 billion-$25 billion. BP would argue that any sum above $7 billion -- appoximately the price it paid for its share five years ago -- would be gravy. But in fact, it would be fleeing a genuine fear of the first scenario.
By its hands-off behavior, the Kremlin seems happy to watch BP twisting. Don't look for assistance from President Dmitry Medvedev.
Photo: Joe Shlabotnik
Rights: Creative Commons
Labels: BP, medvedev, oil and glory, oil and the glory, Putin, putin's labyrinth, Russia, Russian oil, tnk-bp
4 Comments:
Steve:
It's beyond me why we should all of sudden feel sorry for BP now that the show is on the other foot. For decades, BP has been able to strong-arm governments around the world to sign deals more favorable to BP than the governments.
Now that the balance of power has shifted, BP starts crying foul. This is the oil business and fairness is a concept that doesn't carry much meaning.
The expression should read, "All's fair in love, war, and the oil business."
So, for those of us who've watched BP come out on top by forcing the hand of governments around the world for decades, we say, "Suck it up Peter."
The West could have created an atmosphere of mutual benefit during the 1990's when Russia was weak but instead the oil majors sought to use their leverage and take as much as they could get from a weak and desperate Russia. Their approach created a zero-sum playing field. Now that the Russians have found their footing and are playing as equally well as their Western counterparts, BP cries foul.
Can we take from this that the West doesn't like to compete in games where their "opponents" are as strong and talented as they?
Timothy,
I agree that oil business involves strong-arm politics. BP getting squeezed out of Russia is very different from the British Council's getting squeezed out of Russia.
But your argument that Russia was humiliated in the 1990s doesn't hold the water. First of all, to paraphrase Eleanor Roosevelt, no one can cause us to feel humiliation or shame without our consent.
I remember attending a talk given by some Western volunteers who had worked across the former USSR in the early 1990s. They said people in non-Russian republics expressed a sense of relief:"OK, now we can take charge of our lives". In Russia everyone was sad:"We lost the big country". Well, I guess, that is one source of "humiliation". Post-imperial hangover.
I'm not saying the Russians didn't suffer economically. They did and the misery was huge. Joseph Stiglitz writes that the economic collapse in Russia was bigger than the Great Depression in the US. But the same type and level of misery happened in the non-Russian republics. But they are not turning anti-Western and accusing the West of humiliating them. On the contrary, they are friendly towards the West and would be even friendlier if Russia was not so hostile to the idea.
Let me get this straight.... Russia is to blame to NATO breaking its word and continually seeking to expand eastward. That's Russia's fault?
Is it Russia's fault that the Bush administration has unilaterally decided that it will place radar stations and missile interceptors in the Czech Republic and Poland? What so many miss is that it's not the missiles which upsets Russia but rather, the radar stations which ostensibly are to monitor Iran but also have the ability to monitor a part of the Russian territory which NATO was previously unable to monitor.
How about Kosovo and Abkhazia? Oh I forgot, Kosovo is unique! What applies there doesn't apply anywhere else. Whatever!
There's a simple reason why Russia reacts to the West differently than do the former Soviet Republics; it's because the West treats Russia as an enemy in both its actions (see above) and in its words (go read WaPo, NYT, Economist, La Russophobe, et al).
The impetus for change rests with the West not with Russia. Russia is reacting to hostile actions on the part of the West. Who can blame Russia for being a bit peeved-off.
Hopefully, a new administration in Washington will herald a shift in the hostile policy towards Russia and once and for all treat Russia as the friend it so often proclaims Russia to be.
Indeed, NATO expansion, despite SecState Baker's assurances to Gorbachev, has been a constant of Western policy since well before Vladimir Putin entered the scene.
And recall the following points of the NATO-Russia Founding Act:
To achieve the aims of this Act, NATO and Russia will base their relations on a shared commitment to the following principles:
* development, on the basis of transparency, of a strong, stable, enduring and equal partnership and of cooperation to strengthen security and stability in the Euro-Atlantic area;
* acknowledgement of the vital role that democracy, political pluralism, the rule of law, and respect for human rights and civil liberties and the development of free market economies play in the development of common prosperity and comprehensive security;
* refraining from the threat or use of force against each other as well as against any other state, its sovereignty, territorial integrity or political independence in any manner inconsistent with the United Nations Charter and with the Declaration of Principles Guiding Relations Between Participating States contained in the Helsinki Final Act;
* respect for sovereignty, independence and territorial integrity of all states and their inherent right to choose the means to ensure their own security, the inviolability of borders and peoples' right of self-determination as enshrined in the Helsinki Final Act and other OSCE documents;
http://www.nato.int/docu/basictxt/fndact-a.htm
Again, long before Vladimir Putin entered the scene and "destroyed media freedom and Democracy", NATO was using armed force against a European country, after having brandished armed force against Yugoslavia at Ramboulliet, in defiance of the United Nations Charter.
To sum up, long before Vladimir Putin entered the scene and "destroyed media freedom and Democracy", NATO was tearing agreements with Russia, violating the UN Charter, trying to carve up European countries by threat of armed force, and then by the use of armed force. In all of this, Russia was forced into the position of a powerless bystander. That could only be humiliating, in fact, not merely in perception.
Now, Russian power has to a degree recovered. Russia now cannot be ignored or elbowed aside, for there would be consequences unacceptable to the West. And Western foreign policy elites do not like this fact one bit, and their hostility to Russia shows, though it's not clear exactly what they can do about it, except make a lot of noise about how Vladimir Putin "destroyed media freedom and Democracy".
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