O and G Goes Live on Business Week

Business Week has imported O and G into its on-line magazine. Here is the link. O and G readers can continue to receive RSS feeds through the usual site, but you ought to take a look at the Biz Week offerings, both the enterprise stories and its other bloggers. There is good smart stuff.

More on the Baku Bluff

A friend has passed along a fascinating speech I'd missed early this month by Bill Schrader, who runs BP's operations in Azerbaijan. In it, Schrader says that BP and its Big Oil partners in Baku can pump almost 70% more oil from their offshore Caspian fields there than they previously thought, or an increase of 3.6 billion barrels. The total now will be close to 9 billion barrels.

At a time of scarce positive news from the world's oilfields, Schrader doesn't imply the onset of a flood of new oil to the market. But he does mean that Baku's 1 million-barrel-a-day production will last longer -- it was thought that this peak would terminate in five years; now it can be extended for another six years, through 2019. With North Sea and Alaskan oil on the decline, that's a bit of a cushion. I don't have a link to the June 4 speech itself, but here is Platt's coverage if it.

Yet, for the O and G audience, I couldn't help shaking my head. You will recall that, back in the 1990s, when recalcitrant BP was under pressure from Washington and Azerbaijan to build a non-Russian pipeline from Baku to the Mediterranean, the company replied that it would love to, but that there simply wasn't enough oil.

Why, then-BP representative Terry Adams said again and again, there are just 4 billion barrels of oil offshore, and at least 6 billion would be necessary to economically warrant the proposed Baku-Ceyhan pipeline. That naturally was before BP discovered that it needed Washington's approval to buy Arco. Then BP said: Did we say we needed 6 billion barrels? We meant 5 billion! And what do you know? We have found another billion barrels offshore! How do you like that? So let's go ahead and build that pipeline! The 1,000-mile line went live two years ago, and ships a million barrels of oil a day to the world market.

There are multiple interpretations of that timely shift. My own is that both sides exaggerated -- Washington elevated the volume of oil in order to promote the region; the oil companies under-estimated, partly to get a better transit fee deal from Georgia and Turkey.

As for the current energy environment, the Shepherd speech I think informs the current panic-stricken atmosphere. All the information isn't necessarily out there.

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In the Interrogation Room with Gazprom

Police have used the tactic for centuries -- good cop, bad cop. After a few hours of roughing up by a nasty interrogator, a suspect warms to the coffee and banter brought by a seemingly sympathetic officer. Then the suspect throws himself on the mercy of the court.

One sees at least a bit of that strategy in the tandem of Russia's Vladimir Putin and Dmitry Medvedev. After years of nastiness by Putin, Europeans were feeling warm and fuzzy after Friday's European Union annual summit, where they were treated to Medvedev's good cop approach: "being nice to them," as The New York Times' Stephen Castle described it.

I raise this not because it's surprising -- a lot of us see Medvedev as Putin with a nice face; we shall watch how Europe responds.

But it's interesting in combination with a great example of journalistic initiative (also on Friday) by the Financial Times' Carola Hoyos and Ed Crooks. It was a strong email interview the pair managed to land with Gazprom's gonzo CEO Alexei Miller. The paper devoted space on page one, in which Miller says that Gazprom will eclipse Exxon and become "the most influential [company] in the energy business," and dismisses OPEC as no longer relevant. It ran a second article on page three, in addition to a full transcript on-line, in which Miller expands on what's been a self-evident strategy toward which foreign oil companies get new energy deals in Russia: those willing to help Gazprom in its quest to become "a global player on the energy market."

Miller also defended his recent prediction that world oil prices will hit $250 a barrel.

While Russian energy titans are prone to flights of bloated rhetoric, this is not empty talk. Given its vast stores of natural gas, Gazprom may already be the most important energy player in Europe, and Miller says it is striking new deals ranging from Nigeria to North America. In the U.S., Miller is interested in the talk of new natural gas pipelines in Alaska.

In terms of big geopolitics, Miller predicts outright that South Stream, Russia's weapon to defeat Washington in the natural gas pipeline war in Europe, will definitely be built. In the remote chance that the U.S.-backed Nabucco pipeline is also erected, he says, it will pose no threat to Russia's South Stream.

So O and G readers should look for more, not less, Russian assertiveness in global energy. It will simply be quieter.

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Labyrinth on NPR

I was interviewed today by Krys Boyd for NPR's Think. Here is the link to listen or podcast.

The King is Dead. Long Live the King.

So much for friendly-old Berdy.

Radio Liberty has sent around a statement that one of its contributors in Turkmenistan was beaten and tortured in recent days for refusing to stop reporting for the American-funded broadcaster. Sazak Durdymuradov, whom Radio Liberty says is a history teacher who files reports on educational and constitutional reform, was seized from his home three days ago. According to the report, his beating and torture occurred at the same time that senior Turkmen officials were talking with European Union officials about human rights in the capital of Ashkabad.

Western governments have largely withheld judgement on Turkmenistan's new president, Gurbanguly Berdymukhamedov, hoping that he is different from his megalomaniacal predecessor, Saparmurat Niyazov. Berdymukhamedov has raised hopes by taking down ego-driven statues memorializing Niyazov, and reviving the right of young Turkmen to a full education, among other things.

But the human rights situation doesn't appear to have changed much.

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Book Note

Putin's Labyrinth is out today. For those whom I won't meet on the tour, I am happy to mail you an inscribed sticker for your copy. Just send an email to info@oilandglory.com with how you want it to read along with your address.

KSM and Danny Pearl

Scott Shane at The New York Times had a ground-breaking piece yesterday on Deuce Martinez, the old-fashioned interrogator who gleaned the secrets from 9/11 mastermind Khalid Sheikh Mohammed.

The subtext of the piece was the question of whether KSM, as the Kuwaiti is known, was broken by torture, or by Martinez's traditional, hands-off approach. Read the piece, then let's talk.

But my own attention was drawn to a passage near the end of the piece in which Shane addresses a question that's vexed some friends of Daniel Pearl, my colleague at The Wall Street Journal who was murdered in Pakistan six years ago.

Much has been said that Danny was kidnapped because of a story he was working on, but that was not the case -- he was simply caught in a trap that could have gotten any of us.

On the last day of his week-long kidnapping, three Arabic-speaking men arrived at the nursery where he was being held, and killed him. But this turn of events always seemed abrupt -- a couple of the guards themselves said they did not expect Danny to be killed. So who were these killers and why did they come?

There were reports that the actual killer was KSM, but some of us had our doubts -- to be blunt, why would someone of his rank in al-Qaeda get involved with the nitty-gritty of terrorism? Plus KSM confessed to so many crimes while in U.S. detention that they strained credulity.

But, in Shane's piece, we get KSM confessing to Danny's killing out of the blue. He simply blurted it out while in conversation with Martinez. Here is the key sentence from the piece, involving a videotape that the killers made of the slaying: Intelligence analysts eventually were convinced ... because Mr. Mohammed pointed out to Mr. Martinez details of the hand and arm of the masked killer in a videotape of the murder that appeared to show it was him.

If Danny indeed was killed by KSM, one argument that seemed compelling to me was that this ego-driven terrorist, whose entire experience was in planning but never actually carrying out any operation, wanted to prove his credentials to the brute rank and file. A quote from an unnamed "foreign counterterrorism official" in Shane's piece lends credence to this theory: KSM “was a leader. He wanted to demonstrate to his people how ruthless he could be.”

The Valid Isolation of Uzbekistan: We've talked before at O and G about hope springing eternal when it comes to Uzbekistan, and sure enough the West is again softening up toward the worst dictatorship in the former Soviet Union, somehow convinced that this time President Islam Karimov really will keep his word.

The thinking is that isolating Uzbekistan has been counter-productive, particularly sanctions imposed over the 2005 Tiananman Square-like massacre of civilians in Andijan.

Where Karimov does particularly well is in spooking the West by threatening to serve as a foundation for Russia's imperial return to Central Asia. This canard gets repeated by diplomats and reporters repeatedly despite 17 years of a clear Karimov record of swinging from the West to Russia and back again when it is convenient, with no allegiance to anyone.

Just now, I'm concerned about colleagues and their families. Uzbek television is broadcasting open threats against the stay-behind relatives of seven Radio Liberty reporters, most of whom fled for their lives after Andijan. Recall that it was just such threats that preceded last year's murder of Uzbek correspondent Alisher Saipov, who was shot dead in the Kyrgyz city of Osh. Saipov was a long-time critic of Karimov's government and, just prior to his murder, told colleagues he thought he was being followed by agents of Karimov's government.

Book note: Robert Amsterdam, the talented lawyer for imprisoned Russian oligarch Mikhail Khodorkovsky, reviewed Putin's Labyrinth for The New York Post yesterday. It's to be published tomorrow.

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Bill Gates: Meet the Ambani Brothers

The Ambani brothers came on my radar screen a couple of years ago when I was in Mumbai for a Wall Street Journal piece on Mukesh Ambani's enormous, seaside oil refinery, which like all things Ambani will be the world's largest. I had actually intended to focus on Ambani's partner in the refinery -- Chevron -- and was hanging out there with Chevron executive Jeet Bindra, the mastermind of the American company's shrewd deal with Ambani. But the story shifted once I met Ambani himself (pictured left), and toured his high-tech laboratory, his refinery, and other facilities. This is a fellow with a vision, the charisma and gravitas to inspire others, the cash to finance his ideas, and the unusual courage to bet it all. Today, Forbes magazine calls the 51-year-old Ambani the fifth-richest man in the world. Bill Gates is No. 3.

I was reminded of this because Ambani and his younger brother, Anil, have been in the news the last couple of days. The New York Times published a long profile of Mukesh Ambani on Sunday. And the press is filled with reports today about Anil Ambani's possible partnership with two of the biggest names in Hollywood -- director Steven Spielberg and producer David Geffen. The 49-year-old Ambani may provide $500 million in funding, and become a half-partner in the future projects of the Americans' company, DreamWorks, the maker of films like Saving Private Ryan and Dreamgirls.

The Ambani brothers have been estranged for years. But remember their names. We will see more of them in corporate America.

The Real War: Autocrats Versus Democrats

Seventeen years after the Soviet breakup, why has Kazakhstan's Nursultan Nazarbayev never run a fair election? Why is Russia's leadership the subject of a selection as opposed to an election? Why, for that matter, is China so successful as a Communist state?

According to Robert Kagan, this is the natural order of things. The last two decades have been an anomaly, and we are now seeing a revival of real ideological balance, he says in, "The Return of History and the End of Dreams."

For O and G readers, here is the best paragraph in the short, 105-page, pocket-size book: "It is a mistake to believe that autocracy has no international appeal. Thanks to decades of remarkable growth, the Chinese today can argue that their model of economic development, which combines an increasingly open economy with a closed political system, can be a successful option for development in many nations. It certainly offers a model for successful autocracy, a blueprint for how to create wealth and stability without having to give way to political liberalization. Russia's model of 'sovereign democracy' is attractive among the autocrats of Central Asia. Some Europeans worry that Russia is 'emerging as an ideological alternative to the EU that offers a different approach to sovereignty, power and world order.' In the 1980s and 1990s, the autocratic model seemed like a losing proposition as dictatorships of both right and left fell before the liberal tide. Today, thanks to the success of China and Russia, it looks like a better bet."

A cottage industry is under way of books dissecting how we started out with a peace dividend from the fall of the Soviet bloc, and ended up with a hyper-charged war atmosphere. Today's New York Times, for instance, reviews America Between the Wars, by Derek Chollet and James Goldgeier.

The books are part of the current electoral atmosphere -- while McCain and Obama battle for the White House, wonks are girding for a place in one or the other's foreign policy superstructure, including senior spots in the National Security Council and the State Department.

This is perhaps Kagan's current aim. With that in mind, he takes aim at Francis Fukuyama, who in 1992 argued in The End of History and the Last Man that liberal democracy was the final stage of governance.

For those unacquainted with him, Kagan is a long-time provider of intellectual heft for neoconservatives. In this book, he puts on a show of shedding his ideological past. Indeed the first two thirds of the book -- through page 82 -- is a bracing and sweeping display of knowledge and analysis of his argument that the world has returned to a competition between democratic and autocratic states. And that that -- and not a struggle between the West and Islam -- is the main geopolitical contest to which the world will be treated in the years ahead. Militant Islam, he says, will fall by the wayside to this more robust rivalry.

But then Kagan reverts to his past as a factory of neo-con ideological thought. For instance, other reviewers have asserted that, with this work, Kagan loses his embrace of Iraq and the transformational global change he promised in the lead up to the current war. But they apparently missed his assertion, on page 90, that Iraq remains a place that, if handled correctly, could still become a strategic boon for the U.S. "A stable, pro-American Iraq would shift the strategic balance [in the Middle East] in a decidedly pro-American direction," Kagan writes.

Indeed, he argues, unlike the criticism rendered by some major scholars, the Bush administration's foreign policy record stacks up well against its predecessors'. The Cold War resulted in "major strategic setbacks"; during the 1950s and 1960s, Egypt and Syria allied with Moscow.; and, under Jimmy Carter, the U.S. lost its crucial ally, Iran, to the uprising of Ayatollah Khomeini. "Nothing similar has yet occurred as a result of the Iraq war," Kagan writes.

One might also quibble with Kagan's characterization of one of the impulses behind Bush's foreign policy -- the same "noble generosity of spirit" that has long driven U.S. actions. In Kagan's telling, Bush's policies have dove-tailed with how Americans have been all along.

Though it might have upset his publisher, the book easily could lose 10 or 20 pages, where Kagan veers off his theme of democracy versus autocracy and into his drum-beating on behalf of the neo-con cause.

Yet I found the clear-eyed crunching of the genuine current battle worth the cover price.

Why the Kremlin is Winning the Pipeline War

Guy Chazan of The Wall Street Journal weighs in today with the narrative of Russia's thus-far winning strategy against the U.S. for petro-leverage in Europe. As O and G readers know, Vladimir Putin and Dmitry Medvedev have not just out-foxed the Bush administration in this important contest for economic and political leverage across Europe. They also have simply worked harder. The result is a huge advantage for Russia's South Stream and Nord Stream natural gas pipelines. As for the West's competing Nabucco pipeline -- to call it stillborn would be charitable.

The piece puts together how the Russians, using no strong-arm tactics but orthodox economic incentives, so far have triumphed. But pipeline junkies may be amused that it entirely omits Turkmenistan, the center of the pipeline race. Azerbaijan -- a bit player in this project -- is wrongly identified as the vortex. In addition, Matt Bryza, the State Department's deputy assistant secretary for European and Eurasian Affairs, is inaccurately identified as "a key architect" of Washington's triumphant Baku-Ceyhan pipeline. I like Bryza a lot, and no one in State has stuck to the issues longer. But to be fair to a host of others, in the 1990s he was a junior player.

Book recommendation: I reviewed William J. Bernstein's A Splendid Exchange in Business Week. It's one of those personality-driven works where you can actually get through the sweep of history without much effort, in this case using the prism of world trade.

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What BP Has to Fear

Why are we hearing BP chairman Peter Sutherland accuse his Russian partners of being thieves? Is the latest oil drama in Moscow truly a rough, 1990s-style grab for assets, as BP has cast its dustup with the Russian oligarchs Mikhail Fridman, Viktor Vekselberg and Len Blavatnik?

The short answer seems to be no.

On the first question, BP's public indignance appears to reflect an understanding that it faces a threat not just to its Russian assets, which comprise a third of the company's entire worldwide reserves, but to control of BP itself. And in the second case, the oligarchs have stated -- and I think it's true -- that they simply disagree with how BP has managed their joint company, called TNK-BP. As 50% owners of the company, they want a greater say in its operation, including an expansion overseas. And they want the current CEO, Robert Dudley, to be sacked.

BP could simply accede to these demands, and get on with business. That doesn't currently seem likely, one reason being that Sutherland could have difficulty climbing down after taking the altercation so personally.

Short of such a concession, one finds two potential outcomes, neither of them pleasant for BP:

In the worst case (for BP), the largest single block of its own shares -- about 10% of them -- will come to be owned by the four Russian oligarchs. That is one suggestion by the oligarchs -- that the dispute be settled by an exchange of their TNK-BP shares for BP shares. In this scenario, BP has said that it would sell control of TNK-BP to a Russian state company, probably Gazprom or Rosneft. The takeaway from this outcome is BP culture could be forced to change by such assertive new shareholders. Imagine Carl Icahn on steroids.

In the less unfavorable outcome, BP would cut its losses and sell out its half-interest in TNK-BP. The buyer again would be either Gazprom or Rosneft, and the price would be far less than the generally quoted market value of $20 billion-$25 billion. BP would argue that any sum above $7 billion -- appoximately the price it paid for its share five years ago -- would be gravy. But in fact, it would be fleeing a genuine fear of the first scenario.

By its hands-off behavior, the Kremlin seems happy to watch BP twisting. Don't look for assistance from President Dmitry Medvedev.

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