Ripple From Russia: R.I.P. BP?

The stewards of Big Oil have to be watching the latest brawl in Russia with a sense of dread. For their brother, BP, is fighting not merely to save its assets in Russia; it's fighting for its life.

BP itself is rapidly becoming vulnerable as an acquisition target. And for the handful of companies of Big Oil, that's a picture of their own possible future.

For months now, we've been treated to a spectacle of three or four Russian oligarchs making BP miserable. These fellows -- the billionaire oligarchs and BP -- are 50-50 partners in a highly lucrative oil concern that they call TNK-BP. The company accounts for a full quarter of BP's entire global production, and a fifth of its reserves.

The oligarchs want something from the Brits, and the result has been the usual Russian treatment: visits from countless inspectors, summonses to the prosecutor's office, visa trouble.

Yet the TNK-BP dustup no longer has the ring of expropriation as usual.

In the latest development, the concern's BP-appointed CEO, Robert Dudley, fled Russia in secret and is now hiding out in some undisclosed place, prepared, according to BP, to continue running TNK-BP from a distance. I asked a BP adviser why Dudley is behaving so mysteriously. Couldn't he have set up shop like a normal CEO in London? Perhaps this is part of the antagonists' PR war? "I do not know anything about the location except that he is operating as CEO for both [the Russians and BP], and London might not be the most appropriate location," he emailed me in response.

After some three decades of petro-nationalism in the Middle East and elsewhere, Big Oil is accustomed to the puffed-out chest, the boot, and picking up the pieces. It has found a modus vivendi in most cases.

Recall previous bouts of trouble in Russia: In December 2006, Shell responded to a similar onslaught at Sakhalin II -- at the time the world's largest combined oil and natural gas project -- by going to the Kremlin and crying uncle. The response was some advice -- sell half your shares at below-market rates to Gazprom. The result is that Shell, now with 27% of Sakhalin II instead of 55%, is still in business in Russia. And just six months later, BP was forced to sell out entirely from Kovytka, a supergiant natural gas field. BP sold its expulsion publicly as a fair deal, considering that in exchange it was embarking on a worldwide partnership with Gazprom. This partnership was crucial, because BP and the rest of Big Oil is finding it almost impossible to acquire new reserves to replenish what they pump each year; combinations with national energy companies like Gazprom are one way of maintaining one's bulk.

But not so fast. That BP-Gazprom partnership has yet to materialize. Indeed, BP's hopes for this partnership seem not just wishful, but hubristic. Because part of its calculus appeared to be ceding control of TNK-BP to Gazprom, which ostensibly would buy out the oligarchs while leaving BP with a sizeable remaining chunk.

TNK-BP was never a stable grouping, and seems always to have been bound for divorce court. But BP's talks with Gazprom appear to have accelerated the estrangement. The oligarchs seem to have believed that BP planned to sell them out in exchange for a global lifeline from Gazprom.

And, as Yulia Latynina, the respected Russian commentator puts it, the oligarchs responded "in the most brutal manner. They effectively said ..., 'We're the big guys around here.' [What followed] was a shoot-out. The other side shot better."

Here is where the gunfight appears to diverge from Big Oil's prior confrontations in Russia. Previously, the Kremlin has halted the hostilities once a targeted Big Oil company surrenders. But not in this case: BP has made clear that it's prepared to surrender control to one of the state-owned Russian companies, yet that's not been enough.

One is led to the conclusion that control in fact isn't good enough. It looks like Russia may want all of TNK-BP. And it also may not mind Big Oil understanding that, even if the state stands aside in a turf battle, the BPs of the world aren't tough enough to hold their own in Russia's brutal business environment. It may be a warning to all foreigners doing business there.

Richard Gordon, an experienced observer of Russian oil, sees it slightly differently. He told me last week that the Russians want BP to reduce its share considerably -- to 25% or less. At that point, Gordon said, it's up to BP to decide whether it has faith that TNK-BP would be run well enough, and, "if they don't have faith in the company, why remain a partner?"

In The Guardian today, Oppenheimer's Fadel Gheit, one of Wall Street's most seasoned oil analysts, advised BP to get out. "It's a bit like Manchester United losing Ronaldo," Gheit said. "It would take time to recover -- a blow but not fatal."

What happens next? Wall Street would pummel BP's share price were it to lose or leave TNK-BP, which would make the company a highly attractive target for acquisition. In that case, Gheit thinks that ExxonMobil is the only Big Oil company with deep enough pockets to buy BP.

But both Gordon and Gheit think that BP might act first and seek out its own merger partner because, as Gordon put it, it's better to "do a deal than be done to." Gheit told The Guardian that a logical BP partner would be Shell, "with [BP CEO] Tony Hayward running both companies."

Yet why are the Big Oil companies the only perceived merger partners? As Big Oil seeks access to China and the Middle East, wouldn't their national companies and sovereign wealth funds seek equal treatment?

Harvard Business School will no doubt chronicle the brawl as a case for how the game of energy is changing. But Big Oil is observing more closely, because this is its own future.

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Labyrinth At The Commonwealth Club

I spoke on Putin's Labyrinth at the Commonwealth Club in San Francisco. A video was just posted.

Nice Try, Sen. McCain

John McCain today credited President Bush with the plunge in oil prices over the last couple of weeks. He says the market is breathing easier because Bush has come down on the side of easing offshore drilling restrictions. I'm not impressed with the energy positions taken by either McCain or Barack Obama. But just to get this on the record before it takes off in the spiral of political commentary -- Bush's reversal of a presidential ban on coastal drilling has had no impact on the markets, nor is it likely to.

The price of oil is dropping for other reasons. The main one is that, contrary to popular opinion, there is no shortage of oil, and traders are starting to notice. The reason that prices have gone through the roof until now is that traders see that, if any emergency happens, such as a Katrina-type hurricane, there might be a shortage.

It's like a healthy person panicking over a lack of catastrophic illness insurance -- if she or he does contract a really serious condition, or is hit by a truck, there won't be enough money to pay the rent.

Traders are worried that, if there's a hurricane or war with Iran, there won't be enough oil. And they've pushed prices through $100 a barrel and on almost to $150 a barrel because of that trepidation.

Ed Morse, the oil contrarian over at Lehman Brothers whom I profiled this week in BusinessWeek, predicts that we are heading below $100 a barrel.

As for offshore drilling -- traders are looking to the medium term, a few years at most. None is looking as many as a decade ahead, the likely time horizon before any new oil from U.S. coastal waters would come to market.

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In Praise of a Bygone Era

A friend lent me a copy of a new book, My Three Fathers, a page-turner that chronicles a now-lost era of drawing room Washington socializing and respectful secrecy about the private sexual and other foibles of highly public figures. It's by Bill Patten, the father of the best man at my Almaty wedding, Sam Patten (and the lender of the book).

Flipping through the index after reading this and that personal account of JFK, FDR and other American aristocrats, I came upon a fascinating passage on page 203. It recounts a 1957 frolic in Moscow by Joe Alsop (one of the three fathers in the title), the staunch and powerful anti-Communist columnist. O and G readers are familiar with Moscow's surveillance methods, and no doubt Alsop was, too. Yet there he was, caught on camera "cavorting in a hotel room with another man." The Soviets attempted to blackmail Alsop -- Patten doesn't say what exactly they wanted from him -- but he "refused to cooperate." Alsop had gone to Harvard with Chip Bohlen, who at the time was the U.S. ambassador in Moscow. Bohlen got Alsop out of the country fast, and though the Soviets funneled the pictures to The Washington Post, an editor there "simply threw [them] in the trash." As Patten writes, "This degree of respect for privacy seems almost unimaginable today."

I heard Patten speak at the bookstore Politics & Prose. As the title suggests, he has a captivating personal story. (For those interested, the other two fathers of the title are William Patten, who until 1995 the author thought was his father, and the British aristocrat Duff Cooper, who his mother, Susan, finally confessed actually was.)

The British Experience: Oil and Murder

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

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

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

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

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

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

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

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

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

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The Economist reviews Labyrinth

Labyrinth is reviewed alongside three worthy colleagues by Edward Lucas at the Economist.

Prediction: Sub-$100 Oil

Is the drop in oil prices this week a trend? Will motorists get to stop spending the grocery money to fill their tanks?

One thing is sure and that is that oil prices are in a bubble. I wrote a story on this topic for the issue of Business Week that came out today.

It's a profile on Ed Morse, chief energy economist for Lehman Brothers, who has spent much of the last several months explaining why the year-long runup in oil prices is temporary, and will ease starting in the fall. Next year, he says, the average will be $93 a barrel, which would drop prices at the pump considerably. The on-line version includes a fascinating video of Morse.

Morse's basic argument is that there is no shortage of oil. The market is going to notice a buildup of stored oil around the world starting in the fall. And a plummet in prices will follow.

He makes a convincing case. I myself think that any plunge could end up being a dip, with prices rising again as Chinese and Indian demand go back up. As written previously on O and G, Christophe de Margerie, the chairman of France's Total, seems the most sensible voice on the state of Big Oil.

Labyrinth At Google

I spoke about Labyrinth yesterday at Google headquarters in Mountain View, Ca.

Russia's Double Nelson

When the Czech Republic signed a deal this week to host U.S. anti-missile radar, Russia's Dmitri Medvedev said he was "extremely upset." He added, “We will not be hysterical about this, but we will think of retaliatory steps.”

Yesterday the Czechs -- like the Ukrainians, the Balts and the Georgians before them -- learned what that means. The Czechs say that the flow of oil from Russia -- their main supplier -- has suddenly slowed. Instead of about 120,000 barrels of oil a day, the Czechs are receiving about 70,000 barrels a day, and apparently will do so through all of July, according to an Interfax report quoting Euro Online, a Czech publication.

The development undercuts recent efforts by both Medvedev and his predecessor, Vladimir Putin, to assuage the West about Gazprom's growing market power in Europe. Both they and Gazprom chairman Alexei Miller have said that Russia is a reliable partner, and dismissed critics who say the country uses oil as an economic and political lever.

As Andrew Kramer at the New York Times notes, Moscow cut supplies to Ukraine in January 2006 in a dispute over prices, and later in the year stopped shipping oil to Lithuania when it sold an important refinery to a Polish buyer rather than Russia. In addition, Georgia, which has had a long, acrimonious relationship with Moscow -- has suffered numerous cutoffs of natural gas from Gazprom over the years.

This is nothing new. Such cutoffs seemed coincidentally to spring up during the Soviet period too.

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The Laughable Spy

Moscow yesterday accused my former Tashkent roommate, British diplomat Chris Bowers, of being a spy. I've exchanged emails with Chris, and he's taking it with his usual good humor.

The Russians claim that Chris, the U.K.'s trade envoy in Moscow, has been a spy for years, even when he was the BBC's correspondent for Central Asia in the early 1990s. Meaning even when he was my roommate on Ivleva Street in the Uzbekistan capital.

If Chris was a spy, he was a terrible one. Having spent much of two years with him, I can say he didn't collect much information, apart from a lot of chatter from Tajiks intent on killing each other in a civil war. Indeed Chris refused to do so. Once, he actually reversed an order I had given to our office manager, Aziza Nuritova, to start news files on all the major topics in the region. "I've got it all in my head. We don't need files," he said, pointing to his curly locks (now short and gray, by the way.).

Most of the time, in fact, Chris was wooing the girl next door. Whom he married by the way.

Chris is about to leave Moscow anyway on to his next diplomatic posting. The Russians know that and are simply targeting the easiest game.

A Moratorium on Murder?

Russia and Britain are in the latest throes of their dustup over the nuclear assassination of Alexander Litvinenko in central London. The latest chapter is a TV report detailing apparent British conclusions that the Russian state -- and not just individuals or rogues -- were responsible for the poisoning. The Russians have demanded an official British "explanation," meaning a refutation, which the British have refused to provide.

What seems lost in all of this noise is a strange quiet elsewhere -- there have been no sensational murders or state-assisted slaughter involving Russia in well over a year, since Litvinenko's slaying in November 2006.

Even if one counts the mysterious death of journalist Ivan Safronov in March 2007, when he fell five floors from his apartment building, it is still a relatively long time.

Vladimir Putin and his successor Dmitri Medvedev have put up an impassive face toward international outrage toward the string of murders and deaths during Putin's time in power. Earlier this week, Medvedev is said to have rejected British Prime Minister Gordon Brown's face-to-face renewal of Britain's request for the extradition of Andrei Lugovoi, whom Britain has charged with Litvinenko's murder.

Yet, one wonders whether the persistent global opprobrium cast on Russia and the Kremlin has had some impact.

Yet it's one matter to call an effective moratorium on murder. It's another to have decisive judicial action on prior cases. Wednesday was the fourth anniversary of the murder of Paul Klebnikov, the crusading editor of Forbes Russia, who was gunned down near his office as he walked to the Metro. His family marked the date by insisting that the Russians find and try Klebnikov's assailants.

Britain's Brown said that he told Medvedev at the G-8 summit in Japan that the U.K. will not drop the Litvinenko case. Murder carried out in the U.K. must be adjudicated. So far, it's not clear that the Russians get that point.

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Gasoline Prices: To Trust or Not To Trust

One of the vexing parts of the runup in oil prices is Saudi Arabia. No, not that it has so much oil and the world is sending so much money over there to buy it. Instead, it's that almost the sum total of our knowledge that the Saudis can keep supplying the oil is that they say they can.

That's right -- the Saudis, unlike almost every other top-tier petro-state on the planet, won't let any outsider look over their detailed oilfield data. You can get the name of the field, and an estimate of reserves. But experts like to examine more arcane data on an oilfield to get a feel for how long a particular reservoir can keep flowing, and at what rate.

The oil markets like such transparency too. Then they know precisely how much oil to expect from where if there's a crisis, like an oilfield seized by Nigerian rebels, or the threat of war with Iran.

But with the Saudis -- the world's largest oil suppliers -- the world has little more than the Saudis' word for it. As Roger Diwan, a Saudi expert at PFC Energy in Washington told me, "We need to trust or not to trust. And nobody trusts."

Part of the outcome of this failure of trust is that oil prices have doubled over the last year. And you know what has happened as a result with gasoline prices.

I've got a story on this topic on the Business Week web site today. It turns out that some of the Saudi promises are doubtful.

As my colleague Stanley Reed wrote in Business Week recently, just two weeks ago King Abdullah gathered together the leaders of OPEC, the CEOs of Big Oil, and several world leaders in an effort to show that the kingdom would and continue to supply a safety margin of oil supply for years to come. Saudi officials said the kingdom would raise its current production of about 9.5 million barrels a day to 12.5 million barrels a day, and that, if need be, they could manage to increase to 15 million barrels a day.

But consider some field-by-field data for the Saudi fields that I was leaked yesterday. They cover the next five years -- through 2013. According to this data, the maximum production is somewhat less -- 12 million barrels a day. And that's the maximum.

It's equivalent to your car's maximum speed -- true, you can get it up to 120 miles per hour, but you can't keep driving that fast for a long time; setting aside the police, your car won't tolerate it. The sustainable speed, if you want to keep your car, is more like 70 or 80 miles an hour.

Well, in the Saudi fields, the sustainable level of production is going to be about 10.4 million barrels of oil a day, according to the person who leaked the data.

What does this mean? That the world needs to keep focusing elsewhere to reduce prices, mainly for the moment on lowering consumption.

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The Old and the Not-So

Over the last several years, I've been focused on murder, and before that oil, so it's been easy to forget that at one time my main obsession was the concentration in Peshawar, where I was then based as a correspondent for Newsweek, of a bunch of clearly discontented Arabs.

In 1991, that turned into a long piece that I wrote with another correspondent, Melinda Liu, on what were then known as the "Afghan Arabs," the Somalis, Jordanians, Egyptians and so on who, having earned their spurs in the anti-Soviet conflict of the 1980s in Afghanistan, were now filtering out to Bosnia, the Middle East and elsewhere to fight other wars.

Among the people we profiled was a fellow down in southeast Afghanistan named Abu Abdullah, who for years and years had led a ragtag band of Arabs who, though they never could quite get their act together, were among a determined bunch that aimed to capture the city of Khost. Finally, the Pakistanis, perhaps in sympathy with the long-suffering Abdullah and others, fired artillery shells into Khost, spooking soldiers from the Moscow-backed Afghan government, and Abdullah and his gang poured in to the city.

Forlorn Abdullah later became known to the world by his real name -- Osama bin Ladin. And we wrote about the organization he had just set up, al Qaeda, which at that time was simply meant as a counter-organization to a rival group run by the locally worshipped leader of foreign Muslims, a Jordanian named Abdullah Azzam.

In any case, my memory of all this was triggered today when I ran across a video interview of a former colleague of mine from the period, Steve Coll, discussing his new book, The Bin Ladens.

In the video he describes how, in 1993, a car bomb went off in the garage of the World Trade Center, and he and I proceeded to try to find the roots of what happened.

We split up the Afghan Arab world as we knew it. I went off to Sudan, and Steve to Jordan and elsewhere. In Khartoum, I found the house to which bin Ladin shifted after leaving Pakistan and Afghanistan in disgust. The scene was straight out of Peshawar -- the mini-trucks, the men dressed in shalwar kameez, the over-sized houses, and of course the dust. I left several notes for Bin Ladin.

I never met him. At one point, a Sudanese intelligence man pulled up in a car behind us and called aside my assistant. Stop trying to see Osama, he warned my assistant; it's dangerous for him. People want to kill him.

In late summer, we produced a long story for the Post on the network of these militants that had sprung up, starting in Afghanistan.

Peshawar today looks a lot like it did in those days -- a base for foreign Muslims in a war against a foreign invader. Only the perceived invader has changed.

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Book News

"Russian Gangsters Kill, Putin Keeps Mum," Bloomberg declares in a review of Labyrinth.

Six Questions from Harper's Magazine

Scott Horton of Harper's Magazine posed six questions to me involving Putin's Labyrinth. Here is the result.

Update: Brown and Medvedev in Japan

The British papers report that Britain's Gordon Brown made no progress with Dmitri Medvedev today in the Litvinenko murder case (see item below), nor in persuading the Russian leader to intervene in a row between BP and its Russian partners in the TNK-BP oil venture. Without sourcing, the Financial Times provides the most complete -- and colorful -- version of the pair's meeting at the G-8 summit in Japan. Here is a more straight-forward account from the BBC.

Food, Energy, Global Warming. But What About Murder?

Oil and food prices are going through the roof, and the world isn't getting any cooler, so it's appropriate that these topics dominate the talk among the leaders of the world's main economies meeting in Japan right now. But British Prime Minister Gordon Brown has another issue on his mind, and that's murder.

Marina Litvinenko says she's received word that, when Brown meets with Russian leader Dmitri Medvedev, he'll probably bring up the 2006 murder of her husband, KGB defector Alexander Litvinenko, who was poisoned with polonium-210, a rare nuclear isotope. Britain has charged a member of the Russian Duma, Andrei Lugovoi, with murder, and has so far unsuccessfully sought his extradition for trial.

It seems highly unlikely that Medvedev will reverse the position taken by his predecessor, Prime Minister Vladimir Putin, who says the British failed to provide sufficient evidence backing up the charges, and that furthermore Russia's constitution bars extradition of its citizens.

Though his style seems more accommodating than Putin's, and Medvedev says he's willing to compromise on disputes with Britain if Gordon will, too, Medvedev hasn't shifted away from any of Putin's main policies.

Yet one wonders whether, in this case, he's prepared to embrace one of his predecessor's main personal idiosyncracies, which has been a strange willingness to be seen as a killer, or a harborer of them.

The answer will help inform the G-8 leaders -- and the next American president – how to deal with oil-rich Russia as it likely grows stronger in the years ahead.

At issue is a series of unsolved murders that weigh over Putin's eight-year rule. Together, they have revealed Putin to be the latest in a long line of Russian dictators whose common thread is an indifference toward the lives of their people.

Putin wishes Russia to be regarded as a rightful member of G-8, the group of industrialized nations that includes the United States, western Europe and Japan. But the Kremlin's record of behavior toward its citizens – an attitude of bespredel, or anything goes, in perceived defense of the state – sets Russia apart from the group's other members. Only in Russia is there a line that, when crossed, can subject its violator to murder, while leaving the culprit unpunished and free to kill again.

Earlier this month, Medvedev told a Berlin audience that Russia would prosecute "to the end" all cases of slain journalists, who make up many of the most high-profile victims. One hopes he was sincere, but skepticism is warranted since Putin promised similarly yet did not deliver.

One of the cases is that of New York-born Paul Klebnikov, the 43-year-old editor of Forbes magazine's Russia edition. Klebnikov, a descendant of Czarist-era Russian nobility, was best known for a ground-breaking investigation of billionaire Boris Berezovsky. But in 2004, gunmen killed him outside his Moscow office.

Police used telephone records to quickly identify two suspects. The defendants, Chechens named Kazbek Dukuzov and Musa Vakhaev, were acquitted in May 2006, but then re-charged, which is permitted under Russia's justice system. Whatever queasiness a westerner might have with double jeopardy, at that point senior Russian officials seemed to be watching. But since then the case has languished. Crucially, police say they can't find Dukuzov to try him again.

In recent weeks, equally troubling news emerged in the murder of Anna Politkovskaya, an internationally known investigative reporter who was shot execution-style in 2006 in her Moscow apartment building. Prosecutors charged three men, but said nothing about the actual alleged killer, Rustam Makhmudov, a brother of two of the defendants. And, as in Klebnikov's case, the identity of the mastermind remains a public mystery.

Doubts about the official investigations in the Klebnikov and Politkovskaya cases don't start at the precinct level – the police work in both seemed first-rate. But there are suspicions of political interference. Some of the skepticism was fueled by Putin, who famously remarked after the Politkovskaya slaying that it was a pity but that her "influence on the country's political life . . . was minimal."

The most notorious murder is that of Litvinenko. The United Kingdom charged Andrei Lugovoi, a former Russian intelligence agent, and sought his extradition from Russia. Putin could have acquitted himself and Russia as a whole by cooperating with Britain. Instead, he rejected the request, and last December, Lugovoi won election to the Duma, thereby gaining immunity from prosecution within Russia while a wanted man in Europe. (Lugovoi denies the charge, and blames British intelligence for the murder.)

There's no evidence that Putin ordered, or even knew in advance about, any of the killings. Yet opinion hardened abroad that he was at the least complicit for creating the atmosphere of impunity for killers in his country. That he seemed unmoved to counter this menacing impression was perhaps intentional -- he may wish to send the message, Don't mess with Russia. But if that is the aim, it is not a formula for the serious relations that Russia claims to seek with the rest of the world.

Putin's authority seems to remain key in Russia. Yet, as Republican John McCain and Democrat Barack Obama formulate their foreign policies, Medvedev's own attitude toward death should be a pivotal consideration. Whether he genuinely prosecutes killers, or continues the policy of bespredel, will speak volumes on whether to embrace Russia, or treat it from a distance.

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Latest Labyrinth Review

The venerable Registan.net has reviewed Putin's Labyrinth.

Guest Column: America's Ostensible Ally in Baku

Next week, Dmitry Medvedev travels to Japan for his first G-8 summit as president of Russia. But before that, he is on a three-day trip to Azerbaijan and Turkmenistan. If the West hasn't taken note of that, it should -- Vladimir Putin and now Medvedev have neatly cemented strong relationships with the oil- and natural gas-rich Caspian countries of Kazakhstan, Azerbaijan and Turkmenistan, nations that during the 1990s the U.S. sought to bring into the Western fold. These countries continue to be strategically important, both because of the tight energy supply, and because of the energy independence they can provide to Europe. In an email exchange, my friend Tom de Waal -- co-author of the classic Chechnya, and author of the trenchant Black Garden -- told me that in The Oil and the Glory I overplayed Azerbaijan's alienation from Russia. His argument was compelling, and I asked him to expand it into a guest column. The result follows.

By Tom de Waal

Russian President Dmitry Medvedev arrives in Baku today.

In the West, there is a widespread assumption that Azerbaijan is an ally, and in the same anti-Russian camp as Georgia. I think that is a misperception. Azerbaijan is now developing a foreign policy of “complementarity,” which used to be the aspiration of the Armenians – be on good terms with everybody and get the best out of everybody. The model here is Kazakhstan, rather than Georgia.

Actually this was always the case. I suspect the Azerbaijanis have always been good at delivering the message in Washington, “You are our main ally and friend” and then going to Moscow and repeating the same refrain. Heydar Aliyev, the first post-Soviet Azerbaijani president (and father of the current president), was careful to keep good relations with Russia; before he talked seriously to Western partners about the non-Russian Baku-Ceyhan oil pipeline, he got a Russian oil pipeline in place – the so-called Early Oil line from Baku to Novorossiisk. Aliyev also wanted to give the Iranians a stake in the offshore Azerbaijani oil consortium, known as AIOC, but was of course over-ruled by the Americans. Aliyev kept his good contacts in Moscow, but was held back by Boris Yeltsin’s personal antipathy to him -- although he did successfully bury the hatchet with another Gorbachev-era reformer who had been his enemy in the Politburo, Eduard Shevardnadze.

Once Vladimir Putin came to power, Aliyev made it a strategic priority to rebuild relations with Russia. Aliyev was very successfully at charming the Putin Kremlin, and his daughter, Sevil, made a useful marriage with a well-connected Moscow Azerbaijani, Mahmud Mammadquliyev. The elite-level relationship has deepened under his son, Ilham Aliyev.

Medvedev, with his background as former chairman of Gazprom, the Russian natural gas giant, now speaks the same language of money and energy as the Azerbaijani elite. They must find it a relief not to have to bother with all that talk of democratization and human rights that enters conversations with Western politicians.

The Georgians enjoy the access they get in Washington but I wonder if they secretly envy the lobbying power in Russia of people like Vagit Alekperov, the Azerbaijani chairman of Lukoil, who have made sure that Azerbaijan doesn’t suffer the kind of boycotts, visa bans and border closures that the Georgians do.

The price for Azerbaijan is that it will not pursue NATO membership, which would alienate Russia, but I believe that is not a big priority for the country’s elite. The Azerbaijanis now feel secure enough because of their vast and growing oil wealth. Moreover, NATO standardization would also threaten to bring unwelcome transparency to the notoriously corrupt Azerbaijani armed forces.

This is not a love-match but a marriage of interests—as indeed is the Azerbaijani-U.S. relationship. Both Baku and Moscow are still capable of actions that hurt ordinary people:

In Azerbaijan, the authorities have needlessly banned the re-broadcasting of Russian television channels, barring Russian-speaking pensioners who cannot afford satellite television from their only form of entertainment; in Russia, the authorities have played to a xenophobic constituency by stopping Azeris from trading at markets. The newspaper commentariats in both countries continue to exchange hostile remarks, and men like former Azeri presidential adviser Vafa Guluzade continue to blame all of the country’s ills on the Russians.

But on an elite level, there are plenty of common interests. And consider also an opinion poll conducted by Azerbaijani political analyst Rasim Musabekov in Azerbaijan in February 2008.

Asked to name the three nations friendliest to Azerbaijan, 89% of Musabekov’s respondents unsurprisingly named Turkey. But Russia came in second place with a 20% vote of approval, well ahead of the United States, which was named by 5.7%, just behind Iran and on the same level as Ukraine.

This suggests that, on the street level, Russia and Russians remain popular with ordinary Azeris. They are still on the same wavelength in a way that Americans or Europeans will never be.

Labyrinth Excerpt

Business Week is running an excerpt of Labyrinth next week. Here is the link to it on the web site, where it went up last night.

Catfights and Bystanders in Russia

Russia is getting harder and harder for BP, whose executives are now getting kicked out of the country. That's not wholly surprising, since the British company is still operating by the old, pre-Putin-era rules that allowed Big Oil to own half or more of a large oil field. But there's something different about this dust-up, and that's that the Kremlin isn't stepping in to make clear the price of peace. The reason may be that the price isn't yet clear because the Dmitry Medvedev Kremlin hasn't decided who is going to control the spoils of the state.

The normal course of business when a western oil company has been shellacked in Russia is that it's been communicated a relatively clear state objective (usually that the Kremlin wants control of the field to go to Gazprom or Rosneft). BP knows this, since almost exactly a year ago it voluntarily agreed to a shellacking when it sold a 63% holding in Kovytka, a huge natural gas field, to Gazprom. (BP also was shellacked involuntarily by its current Russian partners in 1999.)
This time, BP says it's received no such alert. Indeed, the Kremlin says it's staying completely out of what it calls an internal matter between BP and its Russian partners in TNK-BP, which accounts for a full quarter of the British company's annual production.

Today, BP's Robert Dudley, who is CEO of TNK-BP, said his visa hasn't been renewed, and that he'll probably have to leave Russia by the end of July. It's the same for around 79 foreign BP employees.

The Russian partners -- oligarchs Mikhail Fridman, Viktor Vekselberg, Len Blavatnik and German Khan -- say they are simply seeking a larger say in how TNK-BP does business.

I talked to a BP adviser who asked that his name not be used. What he reckons is that we are watching a defensive maneuver.

It goes like this: All parties know that eventually the Kremlin is going to insist on TNK-BP being controlled by Gazprom or Rosneft. There also seems to be a presumption -- although I personally am not convinced of this -- that it's the Russian oligarchs who will be forced out, since they bring only money and no expertise to the oilfields. So, according to this scenario, the oligarchs are seeking to get control of some or all of BP's holding so that when, say, Gazprom comes along, they command a "control premium" in the negotiations, and can demand more money.

For the record, one of the oligarchs has told me by email that this scenario is inaccurate. "The aim is to have a bit more [of an] independent company and get liquidity options with much higher valuation than now (within the next 1-2 years)," he said. In other words, TNK-BP could be worth much more in a couple of years than now, when the Russians could think about selling out.

However, for argument's sake, sticking with the BP adviser's assertion: if Gazprom or Rosneft are to step in, where are they? And why are their executives claiming they aren't interested?

According to this BP adviser, it's because of a power struggle within the Kremlin between officials associated with Gazprom, and those associated with Rosneft. The outcome will decide "who is advantaged in the Kremlin."

I found this explanation compelling. Why else would the Kremlin stand aside and let this go on?

Photo: gaborcselle
Rights: Creative Commons