Why Russia's Oligarchs Saved BP, But Georgia Will Not Join NATO
About a week and a half ago, four Russian oligarchs abruptly called off a months-long seige that had BP on the ropes, and gave the British company a settlement that it could have only dreamed of just a day earlier. The company was allowed to keep its 50% holding in the Russian oil company TNK-BP in exchange for concessions that were relatively minor compared with the worst-case scenario -- that, with a loss of much of its Russian holdings, BP might have to merge with Shell or some other Big Oil rival.
Why did take-no-prisoners oligarchs like Viktor Vekselberg and Mikhail Fridman throw BP the lifeline? And why should this not be seen as a case study into how vulnerable Russia is to market forces?
A glance at Russia's current straits is a fairly clear answer to the first question: Russia's stock markets are in free fall. Dollars are pulling out of the country -- some $35 billion since last month's fighting in Georgia. Russia's billionaire oligarchs are in a panic.
The parties claim that they had reached a tentative agreement in July. The Russians claimed that the Kremlin played no role. These strain credulity, particularly the latter. Not to put too fine a point on it, the oligarchs' public announcement of the deal included remarks by First Deputy Prime Minister Igor Sechin and Kremlin economic aide Arkady Dvorkovich.
The likeliest scenario is that the oligarchs got spooked by their exposure to the already-plunging Russian market, that the Kremlin was blind-sided by the magnitude of Western dismay over Georgia, and that both groups decided that they could do with one less scandal on their hands.
But this does not mean that Russia is going to bend -- certainly any time soon -- on Georgia. Prime Minister Vladimir Putin has effectively acknowledged that he overplayed his hand by seizing Georgian territory. But by pulling troops back from Georgia proper and occupying just the breakaway Georgian republics of Abkhazia and South Ossetia, he is merely obtaining what he wanted in the first place.
What is that? When I visited Kazakhstan over the last couple of weeks, I was told that Western oilmen see Russia now holding "psychological control" over the oil-and-natural-gas pipeline corridor through Georgia. It doesn't mean that Russia will attack the lines -- the re-use of force is unlikely, I think, though that threat isn't dismissed by Azerbaijan or Georgia. But it does mean that Russia holds an effective veto over any expansion of them. And, given Russia's influence over Germany, France and Italy, Moscow also holds an effective veto over NATO accession for both Georgia and Ukraine.
And that is an immense Russian achievement -- an erosion in the corridor's previous western-protected status.
Why did take-no-prisoners oligarchs like Viktor Vekselberg and Mikhail Fridman throw BP the lifeline? And why should this not be seen as a case study into how vulnerable Russia is to market forces?
A glance at Russia's current straits is a fairly clear answer to the first question: Russia's stock markets are in free fall. Dollars are pulling out of the country -- some $35 billion since last month's fighting in Georgia. Russia's billionaire oligarchs are in a panic.
The parties claim that they had reached a tentative agreement in July. The Russians claimed that the Kremlin played no role. These strain credulity, particularly the latter. Not to put too fine a point on it, the oligarchs' public announcement of the deal included remarks by First Deputy Prime Minister Igor Sechin and Kremlin economic aide Arkady Dvorkovich.
The likeliest scenario is that the oligarchs got spooked by their exposure to the already-plunging Russian market, that the Kremlin was blind-sided by the magnitude of Western dismay over Georgia, and that both groups decided that they could do with one less scandal on their hands.
But this does not mean that Russia is going to bend -- certainly any time soon -- on Georgia. Prime Minister Vladimir Putin has effectively acknowledged that he overplayed his hand by seizing Georgian territory. But by pulling troops back from Georgia proper and occupying just the breakaway Georgian republics of Abkhazia and South Ossetia, he is merely obtaining what he wanted in the first place.
What is that? When I visited Kazakhstan over the last couple of weeks, I was told that Western oilmen see Russia now holding "psychological control" over the oil-and-natural-gas pipeline corridor through Georgia. It doesn't mean that Russia will attack the lines -- the re-use of force is unlikely, I think, though that threat isn't dismissed by Azerbaijan or Georgia. But it does mean that Russia holds an effective veto over any expansion of them. And, given Russia's influence over Germany, France and Italy, Moscow also holds an effective veto over NATO accession for both Georgia and Ukraine.
And that is an immense Russian achievement -- an erosion in the corridor's previous western-protected status.
4 Comments:
Is it probable that this was one of Putin's (let's not kid ourselves, boys and girls) aims from the beginning?
Hi Patton. It depends what you mean by 'the beginning.' Some smart hands, like Russian military expert Pavel Felgenhauer, say Moscow was preparing for a rout of Georgian forces as early as April. Whether that particular date is true or not, it seems likely that Putin knew -- as did Georgia's Mikheil Saakashvili -- that sooner or later fists were going to fly. At first, Putin I think simply saw this inevitable dustup as a comeuppance for the much-reviled Saakashvili and his western allies. But, given his strategically oriented thinking, Putin before long would have understood what such an encounter would mean to the East-West corridor, particularly if Russian forces did not stop at South Ossetia or Abkhazia but entered Georgia proper. It seems highly unlikely to have been unexpected collatoral damage. Thanks for the comment, Steve
steve, spot-on. the hope for those of us who make our money from and in Russia, is that the oligarchs collectively point out to the government (sic) that their interventions (Georgia excluded) are unwelcome.
They (the fifth directorate thugs) sitting a top the mess are not entirely dissimilar to a 5th year investment banker. they have no experience of anything other than markets moving from bottom left to top right.
Their (re)-actions to the effects of the liquidity crisis in Russia and the home-grown inflation crisis will be instructive. Their fear of the narod is so all pervasive that I worry that we will see a series of self-defeating populist measures - which will really lead to a crisis.
The Russian state allowing economic rationality to trump power politics ? Doubt it. Sergei Witte, where are you ??
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