Bill Clinton on the Caspian

Jo Becker and Dale Van Natta at The New York Times weigh in today with a first-rate investigative piece on how deals are really done on the Caspian. It's on a no-name (at least on the Caspian) Canadian entrepreneur called Frank Giustra who bagged a huge uranium deal in Kazakhstan in 2005, then two years later sold his previously miniscule mining company for $3 billion. How? It helped that Giustra walked into Kazakhstan President Nursultan Nazarbayev's door with former President Bill Clinton. It's a troubling account, made more so since both Clinton and Giustra make what could be innocent meetings and deals appear like something more by denying the details until confronted with evidence otherwise.

Lord Zalmay

It seemed that the British had the most nerve of any nation on Earth when it came to Afghan politics. Even after the debacle of losing their entire Kabul garrison of 16,000 men, woman and children in 1842 when they attempted to keep their man, Shah Shuja, on the Afghan throne, they returned for yet more bloody noses.

I know that this must be a joke, but just in case it isn’t, we Americans seem prepared to upstage British chutzpah. According to John Barry and Michael Hirsh at Newsweek, Zalmay Khalilzad, the former American ambassador to Afghanistan and Iraq and the current U.S. ambassador to the United Nations, is seriously considering running for Afghan president.

Hamid Karzai is already regarded in many quarters as a stooge of the Americans. I happen to like Hamid as a person, but as with Shah Shuja he’s able to stay on the throne only because of the support of foreign troops.

Now the Afghan-born Khalilzad – a former Rand analyst known in the 1980s for his stubborn intellectual support for the bloodthirsty mujahedin leader Gulbedin Hekmatyar – at least according to this report seems to think he’ll step in and show the Afghans how a country should really be run.

If true, Khalilzad has forgotten the first rule of a westerner going abroad as a reporter or a journalist, which is to avoid the delusions of Lord Jim.

Think 1842. Think overthrow. Think Taliban restoration.

Horelma and the Six-Foot Beauty

The British press says it has resolved the mystery of the Kazakhstan buyer of a 50-million-pound ($97 million) London mansion about two weeks ago. As readers of this blog recall, the British newspapers reported that a Kazakhstani named Horelma Peramam had made the largest new property purchase in British history. The trouble was that I and no other O and G reader had ever heard of such a Kazakh name, nor any other similar Central Asian name.

Here is the answer, say the British newspapers. Her name is Hourieh Peramaa, and she is a 75-year-old, diminutive woman who fled from Kazakhstan at the age of 17, and ended up in an Iranian refugee camp. There she met a medical student named Horelma, whom she married, and ended up a billionaire by investing quietly in real estate across Iran and Europe.

Call me a skeptic. This would mean that Hourieh crossed into Iran in 1950 or 1951, when Stalin was still alive. If she reached Iran, she crossed either from Turkmenistan, or sailed over the Caspian and fled across from Azerbaijan, among the most policed borders in the world.

Now, I actually have spoken with Uzbeks in the northern Afghan city of Kunduz whose families fled Tajikistan and Uzbekistan during the Basmachi rebellion in the late 1920s and early 1930s. They hired "dog men," as they called these gentlemen who hung out in the Amu Darya River wearing dog skin, and for a price smuggled people into Afghanistan.

Did these dogmen still exist two decades later? Or their equivalent? I'm sure that I'm missing something here and am ready to stand corrected.

This said, Hourieh did a wonderful job of public relations by trotting out her striking, 6-foot-tall daughter, Yasmin (pictured above), to tell the tale.

The Trouble With Being a Mobster

The Semyon Mogilevich story is becoming more intriguing. Over the weekend, Cathy Scott-Clark and Adrian Levy at the Guardian in London weighed in with a long piece linking the notorious alleged mobster to the assassination of former Russian intelligence officer Alexander Litvinenko.

Mogilevich, who has been on the FBI most-wanted list for years, was arrested last Thursday on tax charges in Moscow. Russian authorities said they had long been looking for Mogilevich, who has lived for years in plain sight in the Russian capital. There is much conjecture on why he was arrested just now. Some of it involves supposed efforts to unwind the shadowy natural gas trade between Russia and Ukraine, in which Mogilevich appeared to have a role.

The Guardian story is quite an involved piece of journalism. The top half is background, but it then picks up with a tale of Litvinenko investigating Mogilevich, who according to the piece griped about it to his FSB pals, who got angry at Litvinenko … well, you get the picture. It all ends with Litvinenko having polonium 210 dropped into his tea in November 2006.

I have to note the remarkable coincidence of two huge Mogilevich stories breaking at precisely the same time. First his arrest, and now the accusation of involvement in one of the biggest murder cases of recent years.

One can be certain that the FSB is scouring its voluminous unsolved case file for items to hang on the unsympathetic Mogilevich.

Inscription Note for O and G Readers

Some readers have requested inscribed stickers for their book(s). I wanted to open that up and say that I'm happy to do this. Just shoot over whatever inscription you'd like and your mailing address to info@oilandglory.com, and I'll sign and send. Best Steve

Wall Street Grasps Big Oil's Lumbering Future

Wall Street is narrating the story of the decline of Big Oil. Bloomberg’s Fred Pals and Eduard Gismatullin report today that fewer than half the analysts they track are recommending Exxon and Chevron. But almost all are championing Gazprom and Brazil’s Petrobas.

It means that investors are getting the big picture – the long-term future is with state-owned companies with access to huge, home-grown reserves, and the technology-laden oil service companies that can help them get at it efficiently.

There are few scenarios in which Big Oil has a bright future. One is for companies that merge with state-owned oil enterprises. Another is the doomsday global warming option – the Arctic cap melts, the world panics, and suddenly they have free access to the huge polar oil and natural gas reserves now roped off because of technological and environmental obstacles.

Guy Chazan at The Wall Street Journal has a piece today on Gazprom’s steady retail inroads into the European gas market. Some prominent analysts have recently argued that Europe has actually got Russia over a barrel when it comes to energy and economic leverage. This reminds me of the boxer who emerges from the ring to say, “I’ve got that guy just where I want him. Did you see? I hit him five times in the glove with my face.”

Here is what Bloomberg says about Wall Street’s current view of the industry: “Twelve of 13 Wall Street analysts tracked by Bloomberg tell investors to buy Gazprom and 15 of 15 recommend Petrobras, the biggest oil company in Brazil. For Exxon Mobil, 10 of 21 endorse the stock, while for Chevron Corp., the second-largest U.S. oil producer after Exxon, it's eight of 21. Shell's A shares in London have a ``buy'' rating from 20 of 37 analysts.”

Photo: Pankration Research Institute
Rights: Creative Commons

Winged Printed Word on the Caspian

By Sasha Meyer

The confluence of two technologies promises a boon and a challenge to governments of the Caspian Sea region.

The first is Wimax and its competitors, which deliver broadband Internet wirelessly over the distance of dozens of miles.

The other is e-paper. It’s an electronic display that resembles paper – thin, flexible and even rollable. In fact, it can be plain old paper, coated with a thin film of flexible electronics. Compared with other types of displays, it consumes almost no electricity.

Combine the two – as Amazon did with Kindle - and you have a product with profound implications for Central Asia and the Caucasus.

Providing education becomes much cheaper once textbooks are published and delivered electronically. (The Dutch are already trying to do just that.) Kindle, which still has some of the crudeness of a first-generation device, is the size of a paperback, weighs just 10 ounces, and holds up to 200 titles. That means students would need just one e-book throughout their time at school. With Samsung promising 128 GB flash memory cards by next year, the library as we know it is set to disappear: E-book users would have an entire library at their fingertips 24/7.

Similarly, newspapers' finances will be in a much better shape: Printing and distribution in the U.S. accounts for 70% of their total cost. That figure is probably higher in the Caspian region, where printing is more expensive and wages are lower.

News media is already testing the waters with this new product. Two newspapers – Les Echos in France and De Tijd in Belgium – have been experimenting with e-paper editions. Hearst, a big American media conglomerate, plans to introduce an e-reader with a flexible screen device the size of a tabloid paper. And a Kindle edition of The New York Times is already available.

But therein lies the challenge to governments such as those in the former Soviet Union that wish to exercise editorial control: What to do when anyone can start a publication and easily distribute it everywhere?

The task becomes truly daunting once e-paper is coupled with yet another wireless technology.

Digital Radio Mondiale (profiled earlier) can be used for datacasting, that is sending text and images as files alongside or in place of a radio broadcast. DRM datacasting is slow (bandwidth is 24 kbps, about half of dialup's) so sending a newspaper to an e-reader might take a whole day. But DRM's global reach puts it beyond any control, a virtue that might outweigh its limitations for fans of independent news.

Using a radio station to deliver a newspaper might seem an odd idea, but it has been done. On December 19, 1938, a St. Louis station, using technology called radio fax, began a daily broadcast of the St. Louis Post Dispatch. On May 12, 1946, the Chicago Tribune distributed its Radio Tribune edition using WBGN, a local FM broadcaster. Others followed suit: the Philadelphia Inquirer and the Miami Herald in 1947, and The New York Times a year later. Those were pilot projects that didn't lead to mainstream adoption, due to the high cost and cumbersomeness of analogue electronics, the kind of obstacles that are easily overcome in the digital era.

Andrew Odlyzko, a scientist and well-known technology expert, writes that it takes a new technology (DVD, for example) about a decade to replace the existing one (VHS tape). Both e-paper and Wimax have been commercially available since 2004-2005, and the pace of innovation and product offerings has quickened in the last two years.

If Dr. Odlyzko is right, then the media campaign surrounding the next cycle of presidential elections in the former Soviet republics might turn out to be unique. But it cuts both ways: Russian newspapers might send themselves to homes in Peoria in a bid to influence the 2012 U.S. presidential race.

Cold War 2.0 promises to be very high tech and very unusual.

Why Has Russia Arrested Semyon Mogilevich?

Semyon Mogilevich has been the former Soviet Union's most notorious gangster for a decade and a half. He's on the FBI most-wanted list for his activities in the United States. He's persona non grata in the U.K. But he's traveled without interference in Ukraine and Russia -- until yesterday, when he was arrested in Moscow.

The Russians announced today that a 50-man police squad detained the 61-year-old Mogilevich along with a cosmetics company owner named Vladimir Nekrasov on tax evasion charges. Mogilevich was using the pseudonym Sergei Shnaider.

Mogilevich is deserving of a Hollywood script. In a hilarious 1999 interview with BBC's Panorama, here's how he responded when asked why he registered one of his companies in the Channel Islands: "The problem was that I didn't know any other islands. When they taught us geography at school, I was sick that day."

Come on Semyon. We've seen gangster movies, too.

The question remains: Why now? Who did Mogilevich cross to end up detained? Is this a warning? Is Vladimir Putin trying to recover some of his image after his catastrophic handling of the Alexander Litvinenko affair?

Worried About the Wave; Refinery Remorse

Tidal Wave: We’re hearing that one of the most popular topics at this year’s meeting of uber-egotists in Davos, Switzerland, is sovereign wealth funds – the hundreds of billions of dollars in oil profits abroad awaiting investment in assets around the world.

Many of the world's petro-states, such as Russia, Kuwait, Abu Dhabi and most recently Saudi Arabia, have formed such investment funds to hold their oil profits and turn them into diversified assets. According to Morgan Stanley, these funds, now totaling some $2.5 trillion in assets, stand to skyrocket in size over the next dozen or so years until they are at $28 trillion in 2022, or twice the size of the current U.S. economy.

All this cash in the hands of countries that perhaps have different agendas from the West's is behind a call from some quarters for an unspecified "code of conduct" among such funds. The implication is that, short of unspecified "transparency," recently even inserted as an issue into the presidential campaign by Hillary Clinton, Washington would put its foot down.

How is Washington going to put its foot down when it's not the funds, but the likes of Morgan Stanley and CitiGroup that are pleading to be saved by these funds because good, solid Americans like Warren Buffett don't see the upside?

The truth is that control over global finance is shifting East, largely to these petro-states but also to other countries such as Singapore that manage their wealth better than the U.S. has. And the U.S. isn't going to have much control over it.

Refining backsliding: It's a sign of how far matters have deteriorated that $87 oil is regarded as a blessing. Could oil fall as low as $70 a barrel if there's a severe, prolonged recession such as Larry Summers has predicted for months over at the Financial Times? And would prices at the pump drop commensurately? Sure. But that's still a historically high number.

And one of the biggest reasons for expensive oil is a shortage of the right kind of refineries around the world. Meaning that there's plenty of really bad quality oil -- so-called heavy oil, laden with sulfur that must be removed. But there aren't enough refineries capable of rapidly processing it. So you get a backup of this surplus crude, and a runup in prices of the light, low-sulfur crude that the refineries can process.

In short, $87 oil is really the price of that much-demanded light, low-sulfur crude, not the heavier stuff. If there was a way to process the heavier stuff, the price of all crudes would drop.

The Saudis themselves have been among the chief gripers about this state of affairs.

The bad news is stated in an analysis in the venerable Middle East Economic Survey. There are huge delays in a planned near doubling of refinery capacity in the Saudi kingdom. The report was posted by Engineerlive.com.

The Saudis currently can refine about 2.1 million barrels of oil a day. And they have another 1.8 million barrels a day of new capacity on the drawing boards. Their partners in these refineries are ConocoPhillips and France's Total, both of which according to this report are getting cold feet about cost overruns. Will they come on line by late 2012 -- almost five years from now? -- perhaps.

Which brings me to India. Why is it that Mukesh Ambani's Reliance Petroleum can put up a completely new, world-class refinery capable of processing the worst crudes on the planet in just 18 months, and ConocoPhillips, Total and Aramco cannot?

Ambani is set to complete a near doubling of his 660,000 barrel-a-day refinery in Jamnagar, in southern India, by the end of December. That's a turbo-charged pace.

It's also more proof of why Big Oil is on the decline. It has trouble competing with the aspirations of people like Ambani.

Photo: thelastminute
Rights: Creative Commons

Serbia, Bulgaria and the World

Vladimir Putin today racked up another in a string of unbroken victories in the European Pipeline War. Serbia has sold Gazprom a majority stake in the state oil company, NIS, and joined Russia's South Stream Pipeline consortium. Last week, Bulgaria signed onto South Stream as well.

The pipeline is part of Putin's strategy to cement Russia's domination of Europe's energy market, which receives around a third of its oil and natural gas from Russia. Ultimately at stake is political influence in Europe, as Andrew Ross Sorkin discussed today in The New York Times.

The United States and the European Union oppose Russia gaining more of a foothold in Europe, but Putin has far eclipsed their rival Nabucco pipeline project, which would feed natural gas from Turkmenistan to Europe.

Putin's triumphs stem from his personal role in the energy strategy. He himself has flown to Central Asia, to eastern Europe and elsewhere numerous times to court the presidents of the transit countries personally. He even got former German Chancellor Gerhard Schroeder to chair a companion pipeline, called Nord Stream.

Europe and the United States meanwhile have barely gotten started. In recent days, the State Department has discussed a new name to lead the Western effort -- Bush family friend Donald Evans -- but there is legitimate doubt that he has sufficient star power to upstage Putin. The U.S. presidential election may push the issue even further back on the Western agenda.

For a contrarian view of the issue, read this piece by Stratfor, which argues that the Bulgaria deal shows that Russia is actually losing the pipeline war. I personally think this analysis is upside down, but afficionados of pipeline politics should hear all sides.

Photo: pingnews.com
Rights: Creative Commons

Horelma! Horelma Peramam! Stand Up and Be Counted

The Kazakhstan billionaire Horelma Peramam has just spent 50 million pounds ($97 million) in the largest new residential property sale in U.K. history. Good ol' Horelma bought the Toprak Mansion on London's The Bishops Avenue, with its seven bedrooms and four kitchens.

Only, who is Horelma? I'm no slouch on Kazakhstan wealth, and I've never heard that name. Neither have any of a multitude of friends who have emailed asking about this fellow. A Google search pulls up 2,800 listings. All of them about this land sale.

What nationality is Peramam? It's definitely not Kazakh, or any other Turkic nationality that I've heard of. Not Slavic. Not Korean. Not German.

How about pseudonyms? Is it someone from Kazakhstan's first family?

Guesses are welcomed.

Guest Column: Radio Liberty Coming to a PDA Near You

By Sasha Meyer

International broadcasters like the BBC and VOA have always suffered from physics. They broadcast in AM format on short and medium wave. While AM signals can reach listeners on the other side of the globe, they are highly susceptible to interference. The result is discouragingly noisy and at times inaudible reception.

FM format on ultra-short wave is well known for its high fidelity, but it lacks range. An FM signal goes only as far as the horizon, which is not very: A station with a 100-meter-tall antenna can reach listeners only within 20 miles.

During the Cold War, U.S. government-run VOA and others tried to overcome the obstacles by increasing the power of the transmitters and moving them closer to the Eastern Bloc's borders. (Radio Moscow did likewise, using facilities in Cuba and Eastern Europe.)

After the Soviet collapse, the VOA tried to fix the problem by arranging to broadcast its programs on local CIS stations. This solution has proved both cumbersome (requiring negotiation with a multitude of partners), limited (some countries haven't agreed) and temporary (many partnerships have been suspended, both in Russia and Central Asia).

But the arrival of new broadcast technology – Digital Radio Mondiale or DRM – promises to solve the problem once and for all.

DRM enables the delivery of FM-quality audio over AM distances. Field tests show clear reception of a DRM broadcast from Portugal in places as far away as Finland and Cyprus. (Listen to samples here). The next step – DRM Plus – promises CD-quality sound, albeit over shorter distances.

The future for DRM seems bright for several reasons. It enjoys broad support among broadcasters. They see it as their last fighting chance against the Internet and satellite radio.

Unlike the latter two, DRM is cheap: Existing transmitters can be used with an addition of a computer that digitizes the audio. Furthermore, it significantly cuts electricity bills.

Geographically large countries - Russia, India and Brazil - are among its biggest backers. For them, DRM is a cost-effective way to deliver news across their vast distances. A Chinese company already makes DRM-capable Himalaya radios and Russia has produced one called Orlyonok.

The DRM plans got an extra boost last year when Swiss semiconductor giant ST Microelectronics announced plans for a tiny DRM decoder. The chip can be built into anything from car radios to PDAs.

DRM broadcasting is already a reality. For example, the Kremlin's Voice of Russia has been broadcasting since 2003 in DRM format to China and to Europe (in English, French and German).

Expect Radio Liberty and Deutsche Welle to start beaming their DRM programs into the CIS once Orlyonok hits store shelves in Minusinsk and Khujand.

Many Spaniards celebrated the recent demolition of Radio Liberty's huge antennas near Barcelona. But, with DRM's arrival and experts saying that Cold War 2.0 is imminent, that destruction might seem a bit rushed.

Photo: Euthman

Rights: Creative Commons

Turkmenistan Starts to De-Bizarre: Libraries Legalized

It's true that outsiders (including myself) have spent a good 15 years making Turkmenistan the butt of our Central Asian humor. But in our defense, everyone from ordinary Turkmen to Central Asia's presidential circles felt the same way. When you'd simply mention the name "Turkmenbashi," local people couldn't contain themselves.

That of course was what Saparmurat Niyazov insisted that people call him -- Turkmenbashi, or Father of all Turkmen.

Well, all good fun must come to an end. Niyazov died a year ago, and today his successor, President Gurbanguly Berdymukhamedov (a dentist by profession who my friends at Registan.net insist on calling "Stomatalogbashi, or Father of all Dentists) began to discard some of the country's weirdest laws.

Berdymukhamedov announced in a nationally broadcast news conference that Turkmenistan needs a few libraries. Some working cinemas. An opera. A ballet. A circus.

What's next -- will he trash the Ruhnama, the delusional Niyazov tract that's required reading of all Turkmen?

I for one hope that Berdymukhamedov does not melt all the Niyazov statues for scrap. Humor, after all, is the root of sanity.

Photo: Jensimon7
Rights: Creative Commons

Annals of the Rising Lilliputians

The center of gravity of power is shifting relentlessly from the West. The most successful cars are made in Japan. The power of the purse is shifting to less profligate countries like Singapore, and petro-powers like Kuwait. Manufacturing has gone to China. Energy is in the hands of Saudi Arabia, Russia and others.

Much of this shift affects the legendary Big Oil companies, which are being pummeled from all sides.

Now comes another hit. Until now, even if they couldn't control the resources, at least they could buy the oil and natural gas and earn the markup from lucrative finished products. But the world's petro-powers are no longer satisfied earning hundreds of billions of dollars from the mere sale of $100 oil. They want the entire profit chain from their oil and natural gas -- from power generation, retail sales at the pump, refining and chemical-making.

To the degree this happens, it takes away the daily bread of the oil companies, and shifts more power into the hands of the petro-powers. They have even more money to influence global finance, buy up pieces of the Western economies, and if they so desire -- as Russia does -- to sway political events.

Two pieces in today's New York Times go into this topic. One, by Peter Goodman and Louise Story, talks about the purchase of pieces of the economy. The story is decent as a survey, but makes a common mistake by evaluating these purchases in the context of the entire economy, and thus diminishing their importance.

The more relevant context is within industries and slices of industries, for instance in banking and specifically investment banking. As we've discussed on this blog previously, some investment bankers predict that so-called sovereign wealth funds -- the investment arms of these cash-rich states -- will eventually outright control the global finance sector.

In the second piece, Jad Mouawad talks about the aspirations of Saudi Arabia. The article describes a giant new petro-chemical complex under construction in the Saudi city of Rabigh, and the king's idea to build six new industrial cities. This is all reliant on $100 oil, which makes one suppose that the kingdom will do all it can to keep prices right about there.

Edward Lucas Unbound

Edward Lucas, a colleague from the Economist, lets loose today with an excerpt in London's Daily Mail from his new book, The New Cold War. Lucas, a take-no-prisoners critic of the Putin Kremlin, is one of the most articulate voices writing in English on Russia. I expect his book to do well.

Why Russia is Winning the Pipeline War

Vladimir Putin.

That's how Russia today made another advance in one of the most important battles under way anywhere in the world at the intersection of commerce and geopolitics -- for control of the natural gas market between Central Asia and Europe. This battle will decide who dominates the European energy market, and obtains commensurate political leverage in Europe and Central Asia. Russia already supplies more than 30% of Europe's natural gas and oil.

In another example of the role of personal diplomacy in the battle, Putin was in Sofia today and signed a deal nailing down Bulgaria's role as the principal transit point for the South Stream natural gas pipeline, which is meant to cement Russia's dominance of southern Europe's gas supply.

Putin had previously used the prestige of the Kremlin to push through plans for a separate pipeline serving northern Europe, called Nord Stream. And last month, he secured the natural gas supply required to feed the two lines. Turkmenistan and Kazakhstan sold a large portion of their natural gas supply for the next thirty years, and agreed to a third pipeline to take their natural gas to Europe.

One would hardly know that Russia has a competitor in this epic market battle. But it does -- the West, specifically the European Union and the U.S., which have advanced their own dual-pipeline idea. They are a proposed trans-Caspian natural gas pipeline, also starting in Turkmenistan, and hooking into a proposed Nabucco pipeline into Europe.

How is the Western effort faring? It's stalled at the starting gate. Indeed, while Putin personally jets around the world, wining, dining and flattering the presidents of other nations whose favor is required, no Western leader has invited any of them for a personal meal. The U.S. hasn't even managed to select a senior statesman to lead the effort since Thomas Pickering dropped out and decided to stay in the private sector.

If it were not for the way that post-Soviet history has been so topsy-turvy, with a winner one day ultimately losing, I'd say the battle is over. For starters, it's high time for Turkmenistan President Gurbanguly Berdymukhamedov to spend some time at Camp David.

Photo: magnetbox
Rights: Creative Commons

Brits Close Satellite Cultural Offices in Russia

Update to yesterday's post on the U.K.-Russian dispute over the Litvinenko assassination: Great Britain has closed the two British Council offices ordered shut by the Russians outside Moscow. The British say that relations have reverted to Cold War-era temperatures and tactics. What's surprising is that the British seem genuinely astonished to be treated the way many outliers -- local political critics, uncooperative foreign companies, Russian reporters -- have for the last seven years.

Photo: SimonDavo
Rights: Creative Commons

Driving and Dying in Russia

I’ve made it a practice not to drive abroad. The one time I did do so – in a rented car from Aix-en-Provence in the south of France to Paris – a truck traveling in the opposite direction clipped me on a narrow road, then took off. That wasn’t a disaster, but in Azerbaijan, Georgia or the Philippines, I have imagined unofficial fines for this, medical payments for that, and a general fleecing. The latest highway statistics out of Russia don’t give me confidence to reconsider.

According to a report on Bloomberg, 33,308 people died on Russia’s roads last year. The rate per vehicle was ten times higher than in Germany and the United Kingdom.

It’s hard to find comparable data for every country, but Bloomberg does cite a 2006 report by the European Conference of Ministers of Transport. It’s usually clearer to see statistics in a chart, and a look at page five of this fascinating report is startling.

Based on 2004 statistics, Russia had about 24 fatalities per 100,000 population. Even the road-rage-stressed United States had about 14. You want safe? Drive in Malta, where just 3 people died per 100,000 population. (It turns out that the Baltic states aren’t much safer than Russia in this regard; about 23 people died in Latvia and 22 in Lithuania).

As for Caspian-region readers, Georgia surprisingly is comparable with the U.S. (14 deaths). Even more surprisingly, Azerbaijan came in at 9 deaths per 100,000 population.

Photo: Mr. Wabu
Rights: Creative Commons

Terror at the Serena: An Eye-Witness Account

I’ve received an email from a diplomat friend passing along a riveting, eye-witness account of Monday’s terrorist attack on Kabul’s ultra-popular luxury Serena Hotel, where Afghans, diplomats, journalists, NGO employees, and military tend to gather. Seven people were killed. This blog tries to keep it short, but because of its uniqueness I publish the letter in its entirety. I had omitted the writer's name but, as noted on Barney Rubin's blog, Naser Shahelemi is fine about going public.

It was 5:30 PM and I was wrapping up my day in the office. My cousin, my office manager and me decided to head off to the Serena Hotel for a classy 5-star dinner, a rare commodity in Kabul. My two drivers were out driving the employees home and so my cousin decided to drive and we left without a driver which may have saved their lives.

We arrived at Serena Hotel, on the outside gate. The same friendly faces, all 4-6 guards posted outside, one a good friendly face, Aghai Sultan, always gives me a friendly wave and waves my car in after checking the vehicle.

Everything smooth, and everything is normal. We walk to the restaurant section and they have not yet set up the final buffet. The friendly hostess tells me we need 15 minutes. I look at my cousin and I say come on let’s take a walk until things are set up. I head back walk into the lobby see a few friendly faces. I sat down in the lobby a few minutes, and my cousin said hey let’s wait here until until it's time. Then I remembered the nice teahouse on the left side of the Serena called the Chai Khana. So we went for a quick cup of tea in the Chai Khana.

We sat down, tea in hand and then it began. All of sudden BOOM! A suicide bomber dressed as police had walked into the security x-ray booth with a vest of explosives attached on his chest and blew himself up, killing half of the guards in the booth. The windows began shaking. I quickly think hey that was a bomb but the Serena glass is thick so we don’t know if it's close or far. Usually a bomb like that I would estimate was 5 blocks away then all of a sudden BOOM again and then rapid gunfire. The guards killed 1 attacker and but two more got inside the main lobby of the Serena.

Everyone gets up, and starts getting back into a slip door that connects to a 2nd lounge. I quickly move looking around thinking very quick anything could happen. I don’t hear anything. I walk back to the original spot I was in looking for some signal of what was happening. I look through the glass outside and see a Corolla turn and wrap to the front of the Serena door, and then the driver jumps outs and throws himself on the ground. The Corolla hits the wall of the front glass doors. Then I just hear hundreds of bullets shooting. I hit the ground because the bullets at this point sound extremely close to me. I start crawling through the Chai Khana on my knees and I get back to the 2nd lounge in the slip door.

The Serena worker is quickly telling me to move and get to the basement as soon as possible. Grenades are being thrown and the lobby is covered in a thick smoke that no one can see. I hear more explosions. 1 Serena employee is being carried past me covered in blood by two other Serena employees. His hand is covered in blood. His face is covered in blood. I am hearing gunshots in the lobby, the terrorists have infiltrated the lobby and are now shooting anyone.

I turn on the afterburners and start cutting up the hall following a trail of blood leading to the basement. Everyone is running as fast as possible. I lost my cousin in this mess. I get down two flights of steps in the secure basement of the Serena where I see him. We greet each other, and I check to see he isn’t injured. I asked him are you ok? He is fine. We quickly move to the deeper portion of the basement. Among us is the Norwegian foreign minister, and his security contingent. Also there is the UN Human Rights activist Sima Samar, also a former Women’s Minister of the Karzai Administration. We get in the cafeteria and more Afghan politicians are among us, with Europeans and foreigners. Karzai’s oldest brother is also trapped with us and he is pacing frantically as we are unaware of what is going on in the lobby. We can hear shots and we can hear booms, but the remaining security personnel is posted at the doors and is ready to shoot at will.

More people come to the basement, as the terrorists have infiltrated the gym and spa area. They have shot dead the spa manager, Zina, a very pleasant Filipino girl who was just doing her job working in Afghanistan to support herself and her family abroad. The terrorists move into the gym and shoot an American dead in the face on the treadmill. The president of the Olympics, Mr. Anwar Khan Jekdalek, was in the locker room getting dressed when a terrorist came face to face with him. Mr. Jekdalek asked him in Persian, "Khaireyaat kho ast? (Is everything ok?)," and then he turned his gun and took a shot at the president of the Olympics. Mr. Jekdalek made an Olympic dive and fled, and quickly found refuge in some space in the locker room where the terrorist couldn't find him. He escaped to the basement through another pass.

The doorman was carried down to the basement by Serena staff. He had passed out from all of the events he saw, and they were opening up his vest to get him air and began sprinkling water on his face. Then all of sudden a bunch of Serena employees started running down the hall in the basement like they were being chased. This in turn caused two Russian girls to start screaming, and made everyone start to hide including President Karzai's oldest brother. What could you do, what would you do if you knew people were coming to shoot you? Turns out the terrorists had not infiltrated the basement, and the Russian girls had to be calmed down, and were given cigarettes to relax.

Hours pass, and we are all sitting and reminiscing about what the hell just happened in front of our eyes, who and what we saw. Then all of a sudden two U.S. Marines come down to the basement armed to the teeth, asking everyone if they are all right. We were kind of relieved to see the Marines. The Marines then called out for all US Citizens and they took me, and about 10 other people out including my cousin whom I told the Marines was with me. They said fine, but let’s move. We started moving with the Marines out the basement, guns drawn coming upstairs through the same hall I ran down. There was a pool a blood where I was standing before when everything began and now there was blood everywhere in the lobby, broken glass, black walls from the bomb blasts. Hundreds of Afghan Secret Service and NDS guards were standing around. The US Marines got us out and put us in armored vehicles and took us to the embassy where they treated us, took reports and gave us medical checkups.

They later released us, and my driver and guards came and picked us up in another car and we went home. Next day I came to get the Land Cruiser I left parked at the entrance of the door when the bomb went off.

The Amniyat (Afghan CIA) asked us some questions then let us go. I looked at my car, I couldn't believe what I saw. Blood, guts, black marks from the bomb blast everywhere. The Land Cruiser from behind was filled with bullet holes. The 2^nd suicide bomber had detonated himself 5 meters away from the car once he got inside and his finger ended up in the back of my Land Cruiser, and his thumb was on my dashboard. I peered inside the back of the Land Cruiser through the broken glass and saw the finger. I am not at all accustomed to seeing those types of gruesome items up-close. It was pretty damn disgusting. The lack of respect for their lives was proven in this heinous crime.

This whole thing has me really spooked. Now the Taliban are vowing more attacks on Kabul restaurants where foreigners and expatriates are gathering. I am unsure what to make of all these tragic events. However the situation in Kabul is obviously deteriorating.

Brits Go Home

The latest in the fracas between the U.K. and Russia would be amusing were its origin not so serious. Here it is in a nutshell: Russia, angry that Britain won't let bygones be bygones in the London poisoning murder of Russian defector Alexander Litvinenko, has sent a message to that effect by closing down Britain's cultural arm in cities outside Moscow. Britain, angry that Russia presumes to have control over its own territory, says these British Council offices will remain open. As one might expect, we now have a farce involving the St. Petersburg police, the son of a lord (yes this country still calls grown men "lord") and fears of "provocative games."

This all goes back to Litvinenko's assassination in November 2006 by a rare nuclear isotope called polonium-210. Britain rapidly tracked back the polonium to Moscow, and specifically to two former Russian intelligence officers who, for reasons unproven as yet in a courtroom, apparently had this alpha-emitting isotope all over their clothes, and left traces in Hamburg and London. Britain has filed murder charges against one of them, a recently elected member of the Russian Duma named Andrei Lugovoi. Vladimir Putin has chosen to treat the case similar to a traffic violation, and argue (innaccurately) that he's constitutionally barred from extraditing Lugovoi. Britain says rightly that the case is anything but run-of-the-mill, and that Putin should send Lugovoi to Britain post-haste.

Meanwhile, Britain has expelled some Russian diplomats, and Russia has ordered the British Council offices in St. Petersburg and Yekaterinburg closed. For reasons known only to God, Gordon Brown and perhaps the Queen, Britain has rejected Russia's right to close these offices, and left its staff there. So yesterday you had the spectacle of Putin upping the stakes by having the FSB (successor to the KGB) summoning some Russian employees of the British Council for questioning, and detaining the head of the St. Petersburg office, Stephen Kinnock (whose father is Lord Neil Kinnock, a British politician), for an hour on an alleged traffic violation. In the case of the FSB questioning, the intelligence agency said it was acting to prevent them being from used by Britain as an "instrument in provocative games" by Britain, according to the Bloomberg account.

I'm sympathetic with the U.K.'s case. You are right to pursue the Litvinenko murder. But you don't have a leg to stand on in this latest turn. In the world of diplomacy, you have to pack up those offices.

Photo: Laertes
Rights: Creative Commons

Guest Column: Automotive Tinkerers and the Battery

By Sasha Meyer

The papers and magazines have been filled the last several days with talk of the return of all-electric and high-mileage hybrid cars. One main reason is this week's North American International Auto Show in Detroit. But there also simply seems to be a lot going on.

Eric Hagerman at Wired magazine offers up a cover story on the role of the $10 million X Prize in getting inventors jazzed about producing a 100 mpg vehicle. It includes a video of one of the entrants, called Aptera.

Micheline Maynard at The New York Times had a piece yesterday on a new plug-in hybrid planned by Toyota for 2010.

And Steven Ashley at Scientific American has an article on work at institutions like Brookhaven National Laboratory and Saint Louis University to get past the obstacles to truly effective hydrogen and solar-powered fuel cells.

Of course, a true return of plug-in vehicles -- the kind you can leave in your garage and charge up overnight in your ordinary household plug -- would require a breakthrough in battery technology. Stanford University says it's got one such advance. The Palo Alto campus says scientists there have produced lithium-ion batteries that generate ten times more electricity than existing batteries. That they are putting mature and well-understood technologies to a new use bodes well for its fast commercialization. We are talking cell-phone, laptop and automobile uses.

Tesla Motors is getting perhaps more attention than any of the startups. David Welch wrote a glowing piece, for instance, in Business Week during the summer. Tesla's investors include Elon Musk whose previous venture was PayPal; Larry Page and Sergey Brin of Google; and former eBay president Jeff Skoll.

Tesla already makes cars that run only on electricity, using li-on batteries. Unlike traditional car makers that have tried to introduce the new car technology as a mass market product (for example GM's EV1, Honda's EV Plus and Toyota's RAV4 EV), Tesla is starting upmarket, with a plan for moving to the average consumer in a few years. Arnold Swarzenegger and George Clooney are among its first customers. This is a trajectory common in electronics where products - PCs, cell-phones, DVD players, etc – start out as luxury items and later become commodities. As a result, Tesla has so far succeeded where others have failed.

Tesla's first product is the Tesla Roadster. It matches or even beats conventional sports cars with its acceleration (0-60 mph in 4 seconds), speed (125 mph) and looks. Its range on a single charge (250 miles) finally makes the electric car a meaningful transportation option.

It's expensive, at $100,000. Yet the first batch of 100 vehicles sold out within three weeks. It has been pre-ordered by 550 more buyers, and there’s a waiting list. Tesla's next model – White Star – is a family sedan expected to be unveiled in the first half of this year and cost $50,000. Finally, the mass-market product – Blue Star – is slated to arrive in 2012 with a still-considerable price tag of $30,000.

Tesla says these cars can be recharged at home in as little as 3.5 hours. If true, that will accord them a huge advantage over alternative fuel vehicles as their "fuel distribution network" is even more ubiquitous than gas stations.

There are no real trade secrets here. How to make the car body, the electric motor and the batteries are well-known processes. Moreover, most of the tasks can be outsourced to specialist firms. For example, Tesla's batteries are made by the same companies that make laptop and other batteries. The electric-drive system incorporates technology patented by AC Propulsion, a Los Angeles-area company started by Alan Cocconi. The car is assembled by Lotus.

Of course, the kind of improvement touted at Stanford means Tesla -- and its rivals -- can either make their cars more affordable (by reducing the physical size of the battery) or increase their range by an order of magnitude, thus making the electric car even more competitive vis-a-vis internal combustion engine vehicles.

In the end, I think that Detroit is dragging its feet. Making and selling conventional cars is still very profitable. Why should they cannibalize this profitable line of business? That’s why the genuine breakthrough will come from startups that aren't part of the auto industry. Tesla isn't necessarily the best. It just happens to be further down the road than the rest. They will catch up soon.

Two Hours in Astana

My mother's lawyer boyfriend once offered up some legal advice when I was in a dispute with a contractor: It'll all be settled on the courthouse steps. In other words, even though logic says it's less stressful to resolve one's differences at once, and the final deal often doesn't differ much from what's offered along the way, the actual practice is that one or both parties simply won't walk over the line until the very last possible moment.

So it apparently was yesterday in a settlement of the months-long dispute over the supergiant Kashagan oilfield. Recall that new development of this 13-billion-barrel behemoth has been stalled since the summer over a five-year delay in first oil, and a huge cost overrun.

Take a look at the timeline of the weekend events. At the invitation of Kazakhstan's Nursultan Nazarbayev, the chairmen of most of the world's biggest oil companies had readied to pile in to the capital of Astana for a resolution last Friday. They were put off for two days before meetings finally commenced. The trouble was already apparent when Christophe de Margerie, CEO of France's Total, met with the state oil company on Saturday, then simply left town; that's something that a CEO simply doesn't do when an important president has summoned you.

That left Exxon CEO Rex Tillerson, Eni's Paolo Scaroni and Shell's Jeroen van der Veer meeting for nine full hours -- until midnight -- at a restaurant with Prime Minister Karim Masimov.

At 1:56 a.m. today local time, Bloomberg's Nariman Gizitdinov and Lucian Kim filed the following lead paragraphs in a story:

Eni and partners failed to reach an agreement with the Kazakhstan government over stakeholdings in the Kashagan oil field, Eni Chief Executive Officer Paolo Scaroni said, adding he doesn't expect to return to the central Asian nation ``for a long time.'' ``We haven't reached an agreement yet,'' Scaroni said in an interview early today in Astana, the Kazakh capital, after a nine-hour meeting with Kazakh Prime Minister Karim Masimov and the chief executives of companies including Exxon Mobil and Royal Dutch Shell.

Less than two hours later, at 3:49 a.m. local time, Reuters filed the following:

Kazakhstan's KazMunaiGas has reached a deal with an Eni-led consortium over developing the giant Kashagan oil field which will give it an equal share in the project with the largest shareholders. In a statement, the Kazakh company said all companies in the consortium … had agreed unanimously to the new terms.

What happened during those two hours?

The deal on the courthouse steps. Here is a pretty good Bloomberg piece on the deal. Here's Guy Chazan's from The Wall Street Journal.

By the look of things, Masimov and the state oil company pushed matters pretty far and seemed so unlikely to budge that, to put it bluntly, the CEOs of both Eni -- the field operator -- and Total threw up their hands.

At which point Nazarbayev probably stepped in and told his negotiators to agree more or less with the last deal on the table. This is conjecture, but seems likely in the context of how previous disputes in Kazakhstan have been settled.

“Now, a fair decision has been made,” the president’s official web site quoted him as saying in a meeting with company representatives today after the resolution was announced. He said, “After long and difficult negotiations, the Kazakhstani side has protected its interests. … We have prevented a breach of the contract, which was possible if we did not agree.”

Takeaways from the deal: According to The Wall Street Journal, the companies will make an immediate, good-faith payment of $300 million to Kazakhstan. Over the life of the contract, which expires in 2041, they will pay an additional $5 billion to the country, depending on the price of oil. And they will begin to pay the money earlier than previously agreed.

Kazakhstan will pay a sweetheart price of $1.78 billion for about 8% of Kashagan, raising its share of the field to 16.8%, the same as Total, Shell, Eni and Exxon.

After Kashagan comes on line in 2011, Eni will lose operatorship. Kazakhstan appear to have won the final say on how the field is run, with the four top shareholders divvying up duties for developing it.

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Rights: Creative Commons

Electricity in Kabul and (Don't Hold Your Breath) Possible Reconciliation in Kazakhstan

Lights in Kabul: The Associated Press has an excellent story on one reason why Afghan President Hamid Karzai and the U.S. can't get much political traction in that country -- six years after the Taliban were dispersed, Kabul has just three hours a day of electricity at this time. Though I've been tracking Afghanistan since first going there almost two decades ago, I had no idea that the standard of living in the capital was still so miserable. There's a simple rule I learned talking to people in the Caucasus, Central Asia, Afghanistan and Pakistan -- if you want political support, give them simple things like electricity, clean water, schools, roads and hospitals. (tip to The Oil Drum)

Kazhegeldin to return? The opposition blogosphere in Kazakhstan is lit up with new reports that former Prime Minister Akezhan Kazhegeldin is -- this time really -- returning to Kazakhstan a decade after going into exile. I'm told that this time the talk could be serious. Recall that it's Kazhegeldin who has single-handedly made President Nazarbayev's life miserable over the last decade. Well, not entirely single-handedly -- Nazarbayev himself has played a role with his clumsy handling of rival and critical voices. Yet Kazhegeldin financed the information war in Washington and London that led to a plummet in Nazarbayev's reputation in the West through the revelations of what became known as Kazakhgate. In terms of post-Soviet pocket-lining, we're not talking big numbers -- American businessman Jim Giffen is accused of channeling about $80 million in oil company payments to the numbered bank accounts of Nazarbayev, his family and associates. But it shocked, shocked Washington to see actual evidence that its allies have power AND money aspirations, and moreover that they (listen up) rig their elections! Kazhegeldin and Nazarbayev have had secret talks numerous times over the years, but until now have not managed to reach agreement on Kazhegeldin's return. One main issue has been the very real apprehension that Kazhegeldin could be imprisoned or killed.

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Rights: Creative Commons

Planespotting Putin, Musharraf and Nazarbayev

What do these three heads of state have in common? All have had their executive aircraft -- those luxury suites on wings on which they travel the world -- photographed and logged by amateur plane-spotters.

This is good fun. But these hobbyists can also break news. For instance, the latest issue of Foreign Policy has a piece about a possible six-year European shopping spree by Tunisian First Lady Leila Ben Ali. Tunisian bloggers have tracked the north African country's presidential aircraft all over Europe, while noting that reclusive leader Zine el-Abidine Ben Ali almost never leaves his office. They don't seem far from putting two and two together.

The on-line Foreign Policy piece considerately explains how to get started tracking the movements of presidential planes using sites such as Airliners.net. How about the aircraft used by Vladimir Putin? Or the plane used to fly Nursultan Nazarbayev? How about Pervez Musharraff's aircraft?

The movements of the presidents themselves aren't that interesting. After all, that's well-covered by the media. But it could be grist for trackers of first family wealth and spending habits.

Inscription Note for O and G Readers

Some readers have requested inscribed stickers for their book(s). I just wanted to open that up and say that I'm happy to do this. Just shoot over whatever inscription you'd like and your mailing address through the info link at the bottom of this page, and I'll sign and send. Best Steve

The Dislodging of Another Leg From Western Primacy

The news isn't grand for those accustomed to calling the shots for the last century and more. And it all gets back to oil.

As has been discussed on this blog and elsewhere, Big Oil is being eclipsed by national oil companies. Exxon, Chevron, BP, Shell -- the western companies that have swaggered their way through the halls of power since the beginning of the last century -- are losing out to Aramco, Gazprom, PetroChina, and so on.

Now another underpinning of Western primacy in the world -- global finance -- is going the same way. Take a look at this piece in the latest Business Week by Emily Thornton and Stanley Reed. It's on the so-called sovereign wealth funds, the diversified investment vehicles for the oil profits siphoned away by the six most important Gulf states: Saudi Arabia, Kuwait, Qatar, Abu Dhabi, Dubai and Oman.

Takeaways from this article: These states have amassed a stunning $1.7 trillion in their sovereign wealth funds, as much as all the hedge funds in the world combined. And their $180 billion in 2007 profit on these investments amounted to more than half their total $315 billion in profit from oil and gas. The money quote from Gregory A. White, managing director at Thomas H. Lee Partners: Soon "they will be the industry. We will be working for them."

When you add on the $156 billion held in Russia's Stabilization Fund and the $20 billion in Kazakhstan's National Oil Fund, these investment vehicles are buying up pieces of Western companies from Texas to Hong Kong and changing the finance world.

Merrill Lynch needs a $4 billion infusion to shore itself up after an expected $15 billion in mortgage writedowns, as The Wall Street Journal and The New York Times reported in the last couple of days? Don't be surprised if it's one of these funds coming to the rescue. Both Merrill and Citigroup have already received a combined total of some $13 billion in cash through stock sales to Abu Dhabi's sovereign wealth fund. The Journal reported yesterday that both are back in the Middle East to get more cash. Citigroup needs some $10 billion, according to the piece.

These are not silent investors, as were the Middle Eastern petro-states in the 1970s and 1980s. I watch Russia most closely in this regard, and Moscow has discovered that, in the 21st century, it's easier to march across Europe doing business than with an Army.

It's another dimension in the shift of the center of gravity of global influence.

UPDATE: The Wall Street Journal is reporting that the Chinese Development Bank and Saudi billionaire Alwaleed in Talal are part of a group coming to the rescue of Citigroup. Alwaleed already is Citigroup's second-largest individual shareholder.

Photo: IJsendoorn
Rights: Creative Commons

Finding An Honest Man in Big Oil

Those who follow oil seem forever doomed to be in a way like Diogenes, strolling with a lantern, looking for an honest man. There's always the nagging suspicion that one isn't getting the whole story about the state of global energy, and prices at the pump.

Christophe de Margerie, the walrus-mustached CEO of France's Total, champions himself as that singular candid man. A member of a select club that's traditionally delighted in its mysteriousness, De Margerie is the much-deplored, indiscreet fellow who spills the group's secret handshake to the world.

In this case, the whiskey-swilling Frenchman has been telling the world that the oil industry has or is about to reach a peak in the volume of oil it can produce. Furthermore, he's quoted in a piece posted today by the Economist, all his brother oil bosses “think the same. It's just a question of whether we say it.” The article is worth reading.

Where the fierce debate on peak oil gets mucked up is on the geology -- has the world used up half its available oil resources or not? De Margerie neatly ducks that labyrinth by saying it's irrelevant.

What matters isn't how much oil is there, but how much can be produced. He says there simply isn't sufficient skilled manpower, technical equipment and willingness in the petro-states to produce much more than current levels of about 85 million barrels per day.

De Margerie makes a lot of sense. If one extrapolates, there will be much more motivation for fuel economy technologies, the development of non-carbon fuels, and general demand reduction. That's because, even if the West's fuel appetite is more or less stagnant, the economies of India and China are becoming hungrier and hungrier for energy. So there's going to be more competition for that somewhat limited volume of oil.

Russia's New Abbott and Costello Defense

Vladimir Putin -- listen up.

You now have an airtight defense against those who have savaged you ever since you temporarily cut off natural gas shipments to Europe a couple of years ago in a pricing dispute with Ukraine. It would make Abbott and Costello proud.

Last week, Turkmenistan made news by cutting off natural gas supplies to Iran. The Central Asian nation, the runt forever being picked on by neighborhood bullies, had been shipping 23 million cubic meters a day to Iran, but is tired of being short-changed by Russia and Iran for its natural gas and wants more money. Russia is now paying $130 a thousand cubic meters (versus $350 it plans to charge Europe); Turkmenistan presumably wants at least that much from Iran.

Here's where the story gets wind. You see, even though Iran buys natural gas, it also sells it. But this is an incredibly cold winter, and Iranians are freezing. The country needed those Turkmen imports. So it has cut off Turkey, which was supposed to receive 30 million cubic meters a day from Iran but is only getting about 5 million.

Except it's also mighty cold in Turkey. So it has cut off Greece.

The poetic coda? The rescue squad is from Russia. Gazprom, the lightning rod for things that go wrong across Eurasia, is shipping an extra 8 million cubic meters of natural gas a day to Turkey and 1.5 million cubic meters a day to Greece.

Photo: Pirate Alice
Rights: Creative Commons

Pickering is Out; What about Zbig?

Thomas Pickering, the senior U.S. statesman who was to lead the high-level U.S. pipeline campaign on the Caspian, has withdrawn for unspecified reasons. So the State Department has resumed its search for a supergiant diplomat to turn around the so-far struggling Western effort to blunt Russia's dominance of the European natural gas market.

On its face it's a market issue -- the control of natural gas pipelines stretching from Turkmenistan to Europe. But it also has geopolitical ramifications. If Turkmenistan and Kazakhstan can export their natural gas only through Russia, that would give Moscow enormous continued leverage over the east Caspian. And if Russia continues to control a third or more of the European natural gas market, some in the European Union fear, it could leverage that into more political influence.

What has resulted is competing pipeline strategies. Russia is well along the way to building a set of three pipelines -- one from Turkmenistan north to Russia; a second to northern Europe called Nord Stream; and a third to southern Europe called South Stream. The West's response is only on paper -- a trans-Caspian pipeline from Turkmenistan west to Turkey; and a pipeline from there to Europe called Nabucco.

So the State Department has sought to super-charge the Western effort with an eminence grise like Pickering, who currently consults for Boeing. With Pickering out, who are the remaining giants?

What about Zbigniew Brzezinski? There's no doubt about his credentials, stature and ability to get the job done. I have no idea whether Brzezinski would agree. But I'm told that such an appointment would have the unusual virtue of driving both Russia and the Bush administration insane, seeing as both have been his targets.

But the question again comes down to priorities. Are we talking politics or effectiveness?

Until then, I'm told that Undersecretary of State Reuben Jeffery will fill in, and that long-time regional expert Steven Mann will take his post as No. 2 in the Caspian envoy's office.

Photo: Pingnews
Rights: Creative Commons

Report: What the Kashagan Deal May Look Like

Milano Finanza, the daily in the home city of Italy's Eni, is reporting the skeleton of a final settlement of the Kashagan dispute that includes a surprising sweetener for holdout Exxon. The report quotes no sources. I found Thompson Financial's pickup of the piece but not the original.

With at least 13 billion barrels of proven reserves, Kashagan is the largest discovery in the world in the decades. New work there has been suspended for months in the dispute over a five-year delay in producing first oil, and a huge cost overrun.

The basics of the agreement as reported by Milano Finanza are a $3.5 billion fine and relinquishment of a total of about 8% of the supergiant field, which would double Kazakhstan's stake to about 16%, equivalent to top shareholders Eni, Exxon, Shell and Total.

But that's been more or less known for months. The more interesting part is that Exxon -- the squeaky wheel -- may have gotten a bit more than anyone else for its hard-nosed stubbornness. Recall that Exxon has been the holdout for weeks, seeking to make clear that, unlike its rivals, it's no pushover.

The report says that Exxon will receive unspecified new exploration rights plus an extension of the longevity of its deal at Kashagan's sister field, Tengiz. If that's accurate, one has to applaud the company. It would mean that it continues to challenge the newly powerful petro-states and at key times be treated differently from its competitors. Recall that so far it's the only major not to buckle under pressure in Russia.

Confirmation of the settlement may be known Friday, when Kazakhstan's President Nazarbayev has called together the representatives of all the foreign partners. When he makes such moves, he usually has the terms of a deal in mind.

Update: Gabriel Kahn at The Wall Street Journal reports that the Nazarbayev meeting is delayed until at least Sunday.

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Rights: Creative Commons

Finally, Some Sanity on Missiles

The U.S. proposal to install an anti-ballistic missile shield in eastern Europe appears unlikely to advance under the watch of its conceiver, President Bush. The new Polish government says it won't permit the shield right now because it's not clear that the next U.S. president will want it, and meanwhile it's not worth aggravating Russia.

Bush wants to place components of the shield in Poland and the Czech Republic. Russia's Vladimir Putin has opposed it, and Polish Foreign Minister Radek Sikorski has provided his government's position in an interview with the Polish newspaper Gazeta Wyborcza. They were kindly passed on in an article yesterday by Judy Dempsey at The New York Times.

Poland's shift is gratifying news for those like myself who think that there are so many divisive issues on the table with Russia that there's no reason to add another, especially when the shield is unreliable at best when decoys are used. When the shield definitely works, let's talk deployment.

The Polish position is built on multiple levels. It's tied up with Moscow's plans to build the Nord Stream natural gas pipeline from Russia to Germany, crossing the Baltic Sea and averting nations with which Russia has tense relations, like Poland.

Polish Prime Minister Donald Tusk wants Russia to reconsider Nord Stream. If the gas continues to cross Poland, Russia would find it harder to cut off the country during predictable periods of strained relations. Poland has also raised environmental concerns about installing a pipeline in the Baltic.

Hillary, McCain and Jingoism

I was in Baku on an oil story when Hillary Clinton visited Central Asia during the 1990s, but when I got back to Almaty I asked around for local impressions of her. The visit went over well, I was told by her Kazakh and Uzbek hosts -- she stopped by a pre-natal care clinic in Almaty, and met with Kazakhstan's Nursultan Nazarbayev and, in Tashkent, with Uzbekistan's Islam Karimov. But I also heard a singular personal observation from the amused locals -- Clinton, it turns out, doesn't have an athlete's slim legs.

How to respond to an immature remark? Probably with silence, which is what I did. And in fact, I didn't hear Nazarbayev, Karimov or any other official or reporter say publicly: F-A-T T-H-I-G-H-S.

Nor for that matter did I hear then or since any public official abroad say of John McCain: "I looked into his eyes and saw three letters: O-L-D."

Which brings me to recent remarks by Clinton and McCain, both of whom maintain that above all else what sets them apart from their respective rivals in both main parties is gravitas on the foreign policy stage.

So how is it that we find Clinton saying of Vladimir Putin, as she did yesterday: "he's a KGB agent. By definition he doesn't have a soul." And McCain in a newspaper interview: "I looked into his eyes and saw three letters: a K, a G and a B."

Both of these knee-slappers were intended as swipes at President Bush for his oft-quoted 2001 remark about Putin, as kindly provided by the L.A. Times' Andrew Malcolm: "I looked the man in the eye. I found him to be very straightforward and trustworthy. We had a very good dialogue. I was able to get a sense of his soul; a man deeply committed to his country and the best interests of his country. And I appreciated so very much the frank dialogue."

Did Bush's remark reflect wisdom or good judgment? No. But neither does it require any to remark on someone's well-known former employment.

Putin's KGB background does affect Kremlin policy. The thrust of it is -- anything goes. In other words, set the goal, and use whatever means necessary to achieve it, which is a worrying approach to domestic and foreign policy.

But Putin is going to be around a long time, and the U.S. is going to have to find a common language with him. Rather than offering a serious approach, Clinton and McCain dived quite happily into the muck in a craven effort to capture the base.

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Rights: Creative Commons

Update on Tribal Justice in Waziristan

The Associated Press has a quick addendum to the piece below on the wisdom of possibly beefed-up U.S. incursions into Pakistan's tribal areas.

From the AP story, datelined Islamabad:

Suspected Islamic militants fatally shot eight tribal leaders involved in efforts to broker a cease-fire between security forces and insurgents in Pakistan's volatile northwest, authorities said Monday. The men were killed in separate attacks late Sunday and early Monday in South Waziristan, a mountainous region close to Afghanistan where al-Qaida and Taliban militants are known to operate, a security official and the military said in a statement.

Josh Foust commented on the previous piece that the U.S. seems to wish to import its strategy from Iraq's Anbar province to Pakistan. The only part that seems prudent to import is waiting until the locals themselves work out their approach.

Washington's New Idea: Get the Tribals Riled Up

For a roadmap of what not to do in Pakistan, read today's Pakistan piece by Steven Meyers, Eric Schmitt and David Sanger in The New York Times. Dick Cheney and Condi Rice are justifiably worried about Pervez Musharraf's grip on Pakistan stability given the rise of militant Islamic groups in the country's northwest, and the growing foothold by Taliban forces and pro-Taliban civilians. What they are considering: beefing up covert U.S. activity in the region, including the tribal border areas.

I know these areas fairly well from my own travels there over the last couple of decades, and I hope that someone is informing the administration of its folly. Very little in the tribal areas is "covert." The tribal chiefs, plus every family in their villages, are likely to know of the presence of increased U.S. forces even before their boots hit the ground. That's the kind of place this strip of land is. The tribal areas are also among the best-armed places in the world, and the people there don't like uninvited outsiders all that much, which is one reason why the Pakistani Army has fared so poorly there. So an uprising could very well follow.

Advice: If you know where Osama Bin Ladin is, just tell the Pakistanis. That's how Khalid Sheikh Mohammed and Ramzi bin al-Shibh were captured after all.

Question: Who's As Seductive As Gazprom? Answer: Schlumberger

What is Big Oil’s default answer to periods of trouble? Merge. It happened during the $10-a-barrel oil phases of the 1980s, and again in the 1990s. That’s why we’ve got Exxon Mobil, Chevron Texaco, ConocoPhillips and BP-Amoco-Arco.

So why would it happen now, with oil around $100 a barrel? Because that price camouflages the industry’s deep, long-term crisis. Majority state-owned companies like Gazprom, Aramco and Venezuela's Pdvsa own between 80% and 90% of the world’s known energy reserves, and are quite content to develop them themselves. For the Big Oil companies, there's no visible, long-term growth under the current business model.

Think Detroit.

That leaves Big Oil the traditional option of merging itself into the future. Two of the likeliest courtship targets I see are Russia’s natural gas giant Gazprom; and Schlumberger, one of the only long-term growth bets in the oil industry. Business Week features a long, thought-provoking piece by Stanley Reed this week on Schlumberger.

The Big Oil companies are vastly enlarging their natural gas component. That’s where Exxon’s growth is, for example -- in the Qatari natural gas fields. So a merger with Gazprom would be a natural, providing any company instant access to the world’s largest gas reserves. For Gazprom, merger with a Big Oil giant would provide instant fulfillment of its ambitions to be accepted in the West, and to be both an oil and gas company.

Both Big Oil and Russia are notoriously egotistical. Could either get down to a serious discussion, or are we talking Ali and Frazier? One wonders. But the likeliest partnership would be between Gazprom and Italy’s Eni, which have a deep and close relationship in various strategic pipelines.

As for Schlumberger, here’s a company that’s profiting from Big Oil's decision in the 1980s and 1990s to slim down by jettisoning its talented geologists, its drilling operations, and much of its research function. Schlumberger took that trend the opposite direction by bulking up with these very same capabilities.

Now, with the national oil companies disinterested in partnering but only in using western oil giants' technology, it’s companies like Schlumberger that are welcome in all these countries. So if a Big Oil company actually owned Schlumberger, that would be a good foot in the door.

Who would merge with Schlumberger is anyone’s guess -- Shell, BP, Exxon, Total, Chevron?

And what about a merger of the giants themselves – Schlumberger and Gazprom? The Business Week story says that Schlumberger’s Russia business is growing gangbusters, and that it expects Russia to be as important to its bottom line as its biggest current venue of work, the U.S.

Let's watch.

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A Precedent for Real Elections

Georgia's Mikheil Saakashvili appears to have won his big gamble today. An exit poll shows him winning re-election as president and averting a runoff with 53% of the vote, according to Bloomberg's Seb Alison.

Saakashvili stepped down as president when opposition protesters poured into the streets, demanding his resignation. He had been roundly criticized by the West for sending forces into the street to thump heads.

But if the results are confirmed in the actual count, it will validate a strategy that we've seen in no other country in the twelve members of the Commonwealth of Independent States save Ukraine.

That is -- a president who has stepped down and put himself to the voters in a more or less contested election.

I won't hold my breath waiting for others to follow, but Saakashvili has made a gratifying precedent.

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$100 Oil and The Centuries-Old Art of the Deal in Russia

One side story about hundred-dollar oil is how the Big Oil companies are being forced to scramble, grovel and just plain grit their teeth in sorry deals.

Take Russia. Russians are among the most amazing negotiators in the world. Century after century, decade after decade, they somehow get westerners to fall over themselves to trade the store for access to the Russian market.

In the 19th century, Immanuel Nobel, the ingenious father of dynamite inventor Alfred Nobel, moved his entire family to Russia to try to sell his know-how in the laboratory to successive czars. He went home poor. Five decades later, one of his grandsons – the oilman Emanuel Nobel – got rich, but then had to flee the Bolshevik revolution disguised as a peasant.

In the 1920 and 1930s, American industrialists literally built the spine of the Soviet economy – car factories, steel plants, dams – and as part of the deal gave the Soviets the technology needed to do so. Suffice it to say that Stalin then asked the foreigners to leave, and the Soviets started doing the work themselves.

So it is in Russian energy today. During the 1990s, western companies got access to some of Russia’s most technologically difficult-to-develop oil and natural gas fields. Now that they have delivered the know-how, majority ownership in most of those deals has reverted back to state-controlled companies (it didn't help that the companies appear to have gotten sweetheart terms), and no new such access being granted.

And from there, a clear Russian energy policy has emerged: foreign oil companies can have access to Russian energy – but only if it’s part of a swap of assets elsewhere in the world. That is, you can buy a quarter of my house if I can own part of yours.

On its face, that sounds fair, especially to the Russian side, which as usual is negotiating shrewdly. But what about the western side -- what are they giving and what are they receiving for that access?

Which leads me to two German deals for access to a supergiant natural gas field called Yuzhno Russkoye, or South Russian. This northwest Siberian field contains the equivalent of 5.1 billion barrels of oil.

Last month, Germany’s BASF won 25% minus one share of the field. In exchange, Gazprom increased its share in Wingas, a hugely lucrative German utility, from 35% to 50% minus one share.

BASF's access to a quarter of Yuzhno Russkoye arguably wouldn’t be a bad deal if the company could “book” the reserves; that’s how Wall Street values oil companies – how many barrels of oil equivalent they actually own. If BASF gets 1.25 billion barrels of oil equivalent, one might be able to make a case for trading hard assets such as a 2,000-kilometer-long European natural gas pipeline network and an extensive natural gas and fiber optic marketing business.

Whether BASF is booking those reserves hasn’t been discussed publicly as yet. But one has to wonder after Gazprom's last couple of deals – with France’s Total and Norway’s Statoil in Russia’s supergiant Shtokman natural gas field. Gazprom has kept all the reserves to itself. But perhaps the Germans pulled succeeded where the French and the Norwegians failed.

Meanwhile, German’s largest utility, E.ON, is also negotiating for a stake of 25% minus one share in Yuzhno Ruskoye (Gazprom will own the remaining 50% plus two shares). E.ON is talking about a payment of 1.2 billion euros, plus just under a 50% stake in the German company’s Hungarian natural gas trading and storage units, and other unspecified assets. One possibility under discussion is a piece of E.ON’s gas-to-power plants in Great Britain. Again, there's no public discussion of booking reserves.

As oilmen friends tell me in email exchanges, the Germans must know what they are doing. But I still wonder -- even if one can book reserves, one is essentially exchanging an unguaranteed cash flow -- the sale of natural gas -- for hard assets. To me, both deals have the ring of selling one’s seed corn for cash.

Yet, if the past is any teacher, expect more such deals.

That's how oilmen are having to deal with the world of hundred-dollar oil.

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Note to Presidential Candidates II: Plateau Oil

Dick Cheney famously called conservation a lifestyle issue, but the pragmatist’s case for sharply reduced demand for gasoline keeps getting stronger.

Quite apart from security and environmental issues, the folks who have the oil have made it plain that they’re not able or willing to produce more simply because China and India are growing gangbusters, and Americans wish to drive SUVs.

That is, Russia, Saudi Arabia, Venezuela, Kazakhstan and so on – the nations whose state-owned companies control more than 80% of the world’s known reserves – are placing a deliberate restraint on supply, as Ed Crooks blogged yesterday at the FT.

It's partly why some oil company chairman are predicting an "oil plateau" -- a production level of 100 million barrels of oil or so a day that simply won't be regularly exceeded. That's just 20% above the 87 million barrels a day produced now.

I raise this in part because of an article posted yesterday by The Economist, titled “Peak Nationalism.” The piece identifies the above-noted countries as part of the supply problem. For some reason, they don’t want to suck their fields dry. But, the magazine says, “politicians might console themselves with the thought that even the most recalcitrant petro-regime is more malleable than the brute realities of geology.”

The ordinarily sensible Economist has somehow missed the last 35 years of history, in which what it calls “politics” have played an integral role in the world’s oil supply. The policies of nations – in the West and the Middle East – influence both demand and supply. And petro-states see it in their own best interests to stretch out the income stream into the next generations.

That’s not recalcitrant. That’s rational.

It's a central issue for the U.S. presidential candidates. A previously election-oriented post urged more attention to Russia and its oil pipeline policy in Europe. This is a corollary issue. Even higher mileage requirements for vehicles, accelerated retooling of Detroit, more encouragement of non-carbon energy technology all are needed.

At some point, someone will inform Washington that ethanol, while it does satisfy the lobbies of the corn-growing states and their companies, isn't the future. But there could be an answer in the laboratories of Big Oil and the Silicon Valley.

Here's a brief rundown from CNN on the main candidates' positions on energy.

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The Caspian is Blissful, Too

I have a beef with Eric Weiner, my former classmate at Stanford University. Weiner has a new book out this week, called "The Geography of Bliss: One Grump's Search for the Happiest Places in the World."

Let me say right away that the title is spot on -- Weiner is definitively grumpy. But that's not my complaint.

Look at a sampling of the "exotic" countries that he chooses to focus on: Just one -- Bhutan. Meanwhile he shows an astonishing bias toward the boring northern Europeans. We get Switzerland, Iceland, the Netherlands, Britain.

If I may inform Weiner -- Georgia is a pretty darned happy place. You can hardly beat Kyrgyzstan for merry. And how about the Kazakhs -- now that's a gay bunch.

Weiner, whose book is deservingly doing extremely well right out of the gate, blogs here.

Ode to Harry Flashman

Westerners gathered in Pakistan and Afghanistan in the late 1980s and early 1990s understood they were in Great Game territory. They understood it deep in fact, mainly because of the writing of a handful of superb Britons -- Peter Hopkirk, Fitzroy Maclean, and of course George MacDonald Fraser.

Fraser died yesterday, which brought me back to the influence he had on a generation of foreign correspondents based in Peshawar, Kabul and Islamabad.

In The Great Game, Hopkirk was unmatched in his grasp of the big picture, and Maclean's Eastern Approaches was a riveting, first-person account of sneaking into the Caucasus and Central Asia when it truly was perilous to do so.

But it was Fraser's Flashman that provided comic relief while delivering the authentic history. It's a belly-laugh-out-loud frolick through Afghanistan, starring the cad Harry Flashman. When new correspondents arrived in Peshawar, the first thing they were often advised to do was stop by Abdara Road and pick up a copy.

That helped to create a Flashman cult following. In all, Fraser turned out a dozen Flashman novels, taking his character into exploits ranging from the charge of the light brigade to the U.S. civil war.

Farewell George MacDonald Fraser, and thanks for the inspiration.

What $100 Oil Means

Yesterday's runup in oil prices was a mere blip -- two publicity-seeking traders appear simply to have sought barroom talk as the guys who made history's first buy over $100, then quickly sold at a small loss. But, coming the first business day of the new year, it's dramatized the new energy world in which we live.

I recommend an excellent piece today by my former colleagues at The Wall Street Journal -- Neil King, Chip Cummins and Russell Gold -- that sums up the themes we've been discussing on this blog, and takes them further.

In the hundred-dollar carbon fuel world, Big Oil is no longer in charge. Exxon, Shell and Chevron have been overtaken by Gazprom, Aramco and Qatar Petroleum. If you're an investor, the best long-term bets are some of these majority state-owned energy companies, and the technology-rich oil services companies being hired to work for them.

One takeaway point from the Journal piece is that Exxon -- the most successful of any of the Big Oil giants -- has only the 13th-largest oil reserves among the world's oil companies. The twelve biggest are all state-owned. This is a hugely important factoid -- Wall Street bases its valuations of oil companies on the reserves they own. So, logically speaking, they are headed for lower valuations. "Western oil companies now control only about one in ten barrels of the world's proven reserves," the piece says.

Another point is the enormous shift of wealth to these petro-states from consuming nations such as the U.S. At current prices, the Middle Eastern and Central Asian producers will earn around $750 billion this year.

For motorists, all of this means that, short of a recession, gasoline prices aren't likely to go down this year, but only up. If there's a hard hurricane season, they're likely to go extremely high.

The causes are an enormous increase in demand from China and India, along with only slowly rising production from the petro-states. There's actually a lot of oil sloshing around the world, but much of it is the wrong kind. It's heavy and sulfur-laden crude, which most refineries can't process. New refineries that can are on the way, but it'll be three or four years before they come on line.

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For Motorists, 2008 Starts Out With Bad Omen

For motorists, the good news could be if former Treasury Secretary Larry Summers is right and we're headed for a huge, deep, global recession. Otherwise, 2008 looks like another expensive year on the road.

An uptick in violence in distant Nigeria helped to send crude oil prices through the roof today. A couple of crudes meant for delivery next month are at or near triple digits -- West Texas Intermediate rose to $100 a barrel, and Brent to $99.35. (Wall Street Journal piece)

This again highlights the global shortage of the types of light crude that most refineries can process into gasoline, something that won’t change until more flexible refineries come on line in three or four years. Unless demand drops -- the Summers scenario -- we're going to continue to have the tight supplies that are keeping gasoline prices high at the pump.

Meanwhile, an article in a journal published by OPEC says the world shouldn’t expect long-term relief from the Middle East. Ayoub Kazim, executive director of Dubai Knowledge Village, a government-run education center, wrote the article in the December issue of the OPEC Review. (abstract)

Carbon fuel optimists usually point to Middle East reserves as evidence that the world needn't worry about declining production in other leading petro-states, including Russia. But Kazim says that, between 2024 and 2048, OPEC countries like Saudi Arabia, Kuwait and others will be unable to satisfy their part of global demand.

If true, Kazim’s analysis would conform with the notion of an “oil plateau,” in which various constraints on production, such as equipment, manpower and expense, put an effective ceiling on total daily supply.

I’ve spoken with a number of plateau advocates, and their arguments are rational.

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Echoes of Zia in Bhutto Assassination; A Reasonable Election Delay

The bungling of the post-mortem in the Benazir Bhutto assassination is eerily reminiscent of the aftermath 19 years ago to the death of the general who hanged her father, Zia ul-Haq. In the Zia case too, police and investigators corrupted the scene of death, a field where a C-130 carrying him and most of his top generals crashed, killing all of them. Likewise, there were widespread cries of coverup, including by the United States, which blocked a FBI investigation and carried away key forensic evidence.

I looked into the Zia investigation thoroughly during the 1990s, and was never satisfied with how it was handled. A joint U.S.-Pakistani military panel found cause for suspecting murder -- one theory was that a nerve gas was implanted in the cockpit that disabled the pilots -- and recommended that a fresh panel comprised of pathologists be formed to look into that angle. But the investigation was halted right there. I concluded that the various powers -- the new Army general Mirza Aslam Beg, the intelligence agencies, and especially the United States -- decided that, if it was murder, they were better off not to know by whom. For instance, one suspect was Moscow, which at the time was in the middle of withdrawing from Afghanistan; if Mikhail Gorbachev were accused of murder, the pullout could be scotched. Another suspect was India, and a new war could be threatened on the Subcontinent.

All of this makes me unsurprised that the Bhutto murder scene was compromised. As with the Zia case, it could be a simple matter of incompetence. Otherwise, the issues appear different -- there ought to be no reason why officialdom wouldn't want to identify the culprits. Unless of course they themselves suspect the possibility of perhaps low-level inside connivance.

CNN has thoughtfully posted the Bhutto post-mortem, which I pass along here. It also posted a story that includes new film of the moments of the killing.

Parliamentary elections: The word is that President Pervez Musharraf will postpone parliamentary elections. On one hand, holding the elections on time next week would have been a strong show of calm leadership on Musharraf's part. On the other, rioters appear to have destroyed all the electoral paperwork in a dozen or so Election Commission offices, and it needs to be reconstructed so Pakistanis can vote in those districts. As my former Wall Street Journal colleagues reported over the weekend, Musharraf's opponents are urging Pakistanis to take out their grief on him; they are likely to see something pernicious in a delay. But it seems to me that a few weeks to get the records in order is reasonable. The date for a new election will probably be the end of February or the beginning of March.

To O and G Readers

A very happy 2008. To the healthy and respectful give and take on issues that all of us think are important regardless of where we live, and from which perspective we look at them. Best Steve

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