The British Experience: Oil and Murder

The end game looks near for the British in one of their pair of bouts of brinksmanship with Russia.

The two countries have been circling one another for months over oil and murder -- in one case, over who will control TNK-BP, the rich Russian oil company; and in the second, over whether British citizens can be murdered with impunity, allegedly by Russian visitors.

The latter issue, over the 2006 nuclear poisoning in London of KGB defector Alexander Litvinenko, may never be resolved. But the former question is highly active at the moment. It involves an attempt by a trio of Russian oligarchs to squeeze BP in their highly lucrativem five-year-old TNK-BP oil partnership. Those observing the dustup debate what the objective is, but there's no doubt that matters took a turn against BP today, when Russian bureaucrats barred Robert Dudley, BP-appointed head of TNK-BP, from working in the country. Visa officials are siding so far with the oligarchs, who in their effort to push Dudley out of the company have said his employment contract has expired.

But that's just the beginning. Last week, 16 senior Russian managers at TNK-BP filed suit for alleged discrimination. These are not billionaires -- they would not have done so were they not fairly sure of cover. Either they are certain that the oligarchs are going to emerge triumphant; they were recompensed generously for possibly risking their jobs; or they are certain they cannot be retaliated against. Whatever the case, things generally go bad for the foreign partner in the former Soviet Union as soon as the issues hit the courtroom.

In a story over the weekend by Andrew Kramer at The New York Times, unnamed analysts suggest that we are watching a new tactic in a now-accustomed Russian strategy of exerting state control over the country's prime energy assets. In this case, the article suggests, the Kremlin has effectively directed the oligarchs to do their worst, the aim being a renegotiation of the 2003 deal.

Indeed, according to my own sources in BP, the company has already resigned itself to losing control of TNK-BP; only, it wants to hand over that control to the state, and not to the oligarchs, who it thinks will simply raid the assets, as they did in a previous dustup in the late 1990s.

I think that's true too -- the Russian state at some point soon will take control of the majority of TNK-BP's assets. The questions are what is going on in the meantime, and how much will BP lose? The prevailing wisdom is that the company will keep most of its share. But is that definite? Will the oligarchs be completely out of the arrangement?

While the New York Times piece is interesting, I don't find it ultimately convincing. Over the last eight years of oil nationalism, Vladimir Putin has made a deliberate attempt to make the country appear governable again. Tax inspectors have swooped in, along with environmental bureaucrats, but the objective was clear, and the targeted Big Oil companies knew what it was; once they elected to surrender control, the rest was quite orderly. That's not the case here. And I find it hard to believe that the Kremlin is now going in reverse, and intentionally making Russia look entirely unmanaged by encouraging the oligarchs to run rampant over BP.

A more compelling argument, made earlier on O and G, is that the Kremlin is simply in turmoil and hasn't decided yet which power group will be the winner of assets such as TNK-BP; will it be Gazprom or Rosneft?

Photo: revjim5000

Rights: Creative Commons