Putin, Sakhalin, and The Lion's Purr

A narrative familiar to all oilmen with long exposure to Russia is under way: With cash reserves running down and insufficient economic relief in sight, Prime Minister Vladimir Putin, his growl turned into a purr, is welcoming back Western oil companies to work Russia's natural gas fields.

So how should Shell and Total -- both of them the recipients of Putin's renewed niceness -- respond? Are Putin's past revocations of deals, expulsions from fields at knock-down rates, and ho-hum attitude toward shakedowns reason not to do business with him now that Russia is trouble?

Specifically, Shell is being offered an unspecified role in the highly complex, offshore Sakhalin 3 and Sakhalin 4 natural gas projects (BP walked away from the latter last month after drilling dry holes). Total signed a smallish, $900 million deal to work with Russia's independent Novatek on the Termokarstovoye natural gas field, and Putin says it's "entirely possible" that the French company will be permitted to work on future stages of the supergiant Shtokman natural gas field.

The subtext is a World Bank projection last week that Russia's economy won't recover to pre-crisis growth until at least 2012; and an International Energy Agency forecast this week that any global oil supply shortage -- and thus a possible return to $100-plus-a-barrel prices -- isn't likely before 2013.

The necessity for the involvement of foreigners who still have access to credit -- such as Big Oil -- seems plain: Shtokman's developers said in December that the global credit crisis may delay field development.

In other words, for Russia there's little noticeable light at the end of the tunnel. And Moscow needs to be sure that Gazprom can remain the country's most powerful economic driver.

More subtext: O&G readers recall that in 2006, Russia unleashed environmental regulators onto Shell in order to persuade it to relinquish its majority stake in Sakhalin-2 to Gazprom for what many analysts at the time regarded as a comparative firesale price of $7.6 billion. The same year, Total had a similar experience when Rosneft canceled a $3 billion partnership in the Vankor oilfield. Exxon Mobil has been forced to sell the natural gas from its Sakhalin I project at cut-rate prices within Russia rather than as it had planned in higher-paying China, as Paul Ausick reports at 24/7 Wall Street. And then there's long-suffering BP, which, in a series of fresh indignities this year while the Kremlin has stood by, has been powerless as its Russian partners in TNK-BP have steadily swallowed control of the oil-rich venture.

David Lee Smith at Motley Fool suggests that Shell's apparent agreement to let bygones be bygones and embrace the extended hand is "goofy." But Tim Newman, a Briton who lives on Sakhalin and blogs at White Sun of the Desert, writes that Shell will be wise to demand international bank guarantees in exchange for fresh investment. Short of that, Newman says, expect "another round of blubbering and hurt feelings in five years time." Over at TPRR, Tim Pendry argues that the totality of events reflects Russia's "complex gamble on events."

Pendry and Newman are both right. While seeking foreign investment at home, and failing to arrest serious depletion of its domestic fields, Gazprom still hasn't abandoned its geopolitically driven global dealmaking. In addition to continuing to promise to build new multi-billion-dollar gas pipelines into Europe, it signed a deal with Nigeria last week promising $2.5 billion in exploration investment there.

Meanwhile, another natural gas row is on the near horizon between Russia and Ukraine. Ukraine has a $4.2 billion bill coming due to Gazprom on July 7th, and lacks the money to pay. As Carl Mortished at The Times of London reports, the European Union is attempting to get some emergency money for the Ukrainians from the International Monetary Fund or the European Bank for Reconstruction and Development. The good news is that the latest dust-up is not occurring in the dead of winter.



Whether or not another jump in the deep end is wise, in the end Russia is a prime example of Big Oil's history of returning for more to the scene of its greatest debacles. The reason is the usual one: These behemoths need to book fresh reserves, and they are hard to come by.

In Total's case, for instance, the French company capitalized on an alliance not only with Gazprom, which owns 19% of Novatek, its local partner, but with oil-trading king Gennady Timchenko, a favored old KGB friend of Putin's, who owns 18% of the company.

In perhaps a touch of irony, Total CEO Christophe de Margerie said after the signing, "I don't think it's difficult to work in Russia. One only needs to learn to work efficiently with Gazprom, Novatek and Rosneft."

Satellite-Streaming Into Iran

Over at Mother Jones, David Corn posed the question the other day on whether the U.S. could frustrate Tehran's Internet jamming by beaming broad-band service into the country by satellite. He reported that the question was asked of White House spokesman Robert Gibbs, who did not know the answer.

O&G's own Sasha Meyer answered this question in a post last month. There does not appear to be a currently available, off-the-shelf technology. But Meyer describes a satellite system being put in orbit by Google-backed o3b whose target is to beam high-speed Internet service from space starting the end of next year. Alcatel-Lucent is developing a similar system with SkyTerra.

Meyer suggested such systems as a way to bring tamper-free Internet to Central Asia. It's not fail-safe. As Charles Recknagel over at RFE-RL suggests, the Iranians and Central Asians can jam the signal; they also could simply prevent possibly necessary base stations from being installed. But it is technologically possible.

For the West, One Loss, One Gain

Short of a bolt of lightning from Qom, there will be no game-changing opening between the West and Iran. The politics in neither Tehran nor Washington will allow one, not after all the bloodletting, both past and what is still to come. Yet, all is not lost. Kyrgystan's agreement to allow U.S. use of a military base is a reversal for Moscow, and a comparatively less-important but still an unexpected boon for Washington.

In Iran, some reporting -- over at Eurasianet, for instance -- has had it that a highly irritated former President Ali Akbar Hashemi Rafsanjani has been in the holy city of Qom, working to persuade its powerful clerics to turn against paramount leader Ayatollah Ali Khamenei. Unless they do -- and this report frankly appears to reflect wishful thinking by regime critics rather than a credible news leak -- there is no logical reason to anticipate any change in the current crackdown, and thus any thaw of U.S.-Iran relations.

There simply is no political scenario in which either the Obama administration, or Tehran, can be seen locally as making concessions to the other side. That includes talks on Iran's nuclear program. According to a report by Barbara Slavin in The Washington Times, the Obama administration sent a letter last month to Khamenei suggesting "cooperation in regional and bilateral relations." But the events since June 12th put the kabbosh on this notion.

Not incidentally, the Iranian crackdown about shuts off the last ray of hope for the Nabucco pipeline, the leading western option for balancing off Russian petro-power in Europe.

Then there is Kyrgyzstan. Since the Soviet collapse, U.S. influence has been on the ascent in Central Asia and the Caucasus. Kyrgyzstan has no natural resources to speak of, but managed to grab western attention by embracing the free market earlier and more tightly than anyone else; the cliche became that this nation bordering China was the Switzerland of Central Asia. That link to the west was cemented by 9/11/, when the U.S. opened the Manas Air Base to serve troops in Afghanistan.

Yet in February, Kyryz President Kurmanbek Bakiyev went to Moscow and, while standing next to Dimitri Medvedev, announced that the U.S. was out; and Russia would now get the base. Oh, and incidentally Moscow was granting $2 billion in economic assistance to Kyrgyzstan.

The loss of the base was another blow in U.S. influence in the region after the Russian defeat of Georgia in last August's war. There seemed to be no arresting the slide, either.

Knocked back on its heels, the U.S. didn't see much wiggle room. Yesterday, though, both sides confirmed that the U.S. will keep the base. The base's name will change to a "transit center," and the U.S. will pay a lot more ($60 million a year outright, in addition to various other sweeteners, compared with $17 million previously).

Over at RFE-RL, Bruce Pannier quotes Kyrgyz Foreign Minister Kadyrbek Sarbayev as putting down the shift to the turbulence in Afghanistan and Pakistan:

"Unfortunately, it needs to be stated that despite the efforts of forces of the government of Afghanistan and forces of the international coalition, the situation in [Afghanistan], especially in light of the events in the Swat Valley of Pakistan, show a tendency toward becoming worse. And in the event of instability in the future, this could have an effect on the security situation in the states of Central Asia, in particular on Kyrgyzstan."

Is Sarbayev providing the whole, or even any, of the genuine reason for the shift? That's impossible to say. Other elements of the Kyrgyz decision must have been after-the-fact remorse over losing its careful U.S.-Russia balance by lurching to one side. In Moscow itself, the Kremlin is trying to put the best face on the shift, with one official claiming that Russia itself agreed to the quick-switch.

Whatever the case, the bigger picture is how rapidly events can shift in the region. It also underscores that, though most events seem to point to lessening U.S. influence in the region, Washington remains an important player.

Iran: 'I'm Not So Sure I Want to Die Yet'

A simple calibration underlies the diminishing of protests in Tehran: The regime's bet -- correctly -- that those unhappy with the June 12th election results aren't prepared to pay the ultimate price for the right to express their opinion.

As an example, my former Wall Street Journal colleague Farnaz Fassihi quotes a 33-year-old woman who is rethinking her participation in the street demonstrations of the last week: "It's now crossed the line. If you come out it means you are ready to become a martyr. And I'm not so sure I want to die yet," the woman says.

While his dispatch isn't poetry, Sky News correspondent Tim Marshall has it about right: "In the short term it still looks like game over; in the medium term it looks like game on."

Like Russia, Uzbekistan and other dictatorship-based governments, this regime has learned from the mistakes of brethren in Ukraine, Georgia and Kyrgyzstan, and is seeking as a priority to knock out the pillars of any resistance before they are set in place.

Indeed, in his long public speech last Friday denouncing the protesters and their alleged foreign supporters, supreme leader Ayatollah Ali Khamenei explicitly cited the 2003 uprising that ousted Georgian leader Eduard Shevardnadze. Foreigners backing the Iranian demonstrators “thought Iran is Georgia," Khamenei said. "Their problem is that they don’t know this great nation yet.”

So, the regime has threatened to execute and try alleged offenders of public order; it has interfered with communications between would-be protesters by blocking Internet, telephone and television; and it has blocked mourning of those killed. The regime understands the last item most profoundly since the actions leading to the 1979 revolution were in part sustained by 40-day mourning periods for victims of the Shah.

Karin Laub of The Associated Press reports that on the possible show trials. Quoting state-run radio, she writes that Ebrahim Raisi, a top judicial official, said, "Elements of riots must be dealt with to set an example. The judiciary will do that."

Yet small demonstrations of defiance continue. "Protesters came up with new techniques, such as turning on the lights in their cars at certain hours of the day and honking their horns or holding up posters," Laub writes. She quotes an unidentified Tehran resident whom the AP staff got on the phone saying, "People are calmly protesting, more symbolically than with their voices."

The most frequent report in terms of next steps that one hears involve a general strike -- the shutting down of industries, public transportation, shops in the bazaars, for instance. Reports say that Mousavi's own Facebook page calls for a general strike, though I don't see this notice there. Such strikes could be effective since they would be far harder to stop than protests.

One notable aspect of these events is that, contrary to reporting leading up to the elections, President Mahmoud Ahmadinejad is no rogue or loose cannon. The remarks by Khamenei last Friday, along with subsequent comments by the Revolutionary Guards, eerily resemble the president's.

So that when Ahmadinejad trails off on yet another incoherent diatribe on foreign conspiracies and perfidy -- the outbursts that many, including at O&G, regarded as the main impediment to a diplomatic breakthrough with the West -- he has simply been parroting his bosses.

The Second Victim in Iran

As we look for a picture of how long it will take for a resolution of Iran's brittle- and tension-filled politics, President Mahmoud Ahmadinejad's legitimacy is just one victim of the week-long events in Tehran.

The second victim is the already long-shot chance of a U.S.-Iran rapprochement.

Short of a remotely possible, far-reaching concession by supreme leader Ayatollah Ali Khamenei, there is now no near- or medium-term chance of a new day in Middle East and European politics and economics -- both of which seemed possible before the current bloody crackdown.

At O&G, it had specifically seemed possible to foresee a change in the balance of petro-power in Europe. If Russian dominance of Europe's energy picture is to be tempered, there needs to be a fresh, new supply of natural gas from somewhere. Iran seemed to be the best candidate. But for the last couple of years, Ahmadinejad's voluble belligerence has ruled out a lowering of the temperature with the U.S.: Diplomatic traction requires domestic political consent in both countries, and that's not possible when one or both sides is provoking jingoism.

A Mir Hosain Mousavi-led government would not have brought a qualitatively different policy, which was too much to expect given Iranian politics. But that also wasn't necessary. All diplomacy really needed was the leadership of both countries to shift to quiet diplomacy, which would have opened the door to finding areas of agreement.

Now that Khamenei has shed blood -- at least 12 are said to have been killed yesterday alone -- President Barack Obama cannot possibly enter into serious talks. Even if he were so inclined -- a considerable improbability -- U.S. domestic politics would not allow him to.

Iran: Out From Behind the Screen

The news from Tehran is that the confrontation no longer involves President Mahmoud Ahmadinejad, who it's clear is a pawn in events. The brinksmanship is squarely between the supporters of opposition leader Mir Hosain Mousavi and supreme leader Ayatollah Ali Khamenei, who has stepped boldly from behind the screen in an attempt to assert control. This is clear in the outbreak of violence today (thanks to those who continue to post raw videos -- see below -- from the scene).

Yesterday, Khamenei finally made his position clear -- he will not compromise with Iranians who claim the June 12 presidential election was rigged. He ordered Iranians to stop street protests. Today the opposition replied by doing so anyway; this included a suicide bombing near a shrine to the leader of the 1979 Iranian revolution, Ayatollah Ruhollah Khomeini.

By pushing events this way, Khamenei has lost the battle of perceptions. By cracking down, and doing so without at least a facade of legitimacy -- meaning a stamp of approval by the Guardian Council -- he sacrifices the mantle of leading by popular consent. Indeed, there may be no one in control now.

Iran: The Virtue of Clarity

To be sure, Ayatollah Ali Khamenei is a gambler. Yet, by making clear that he intends to crack down hard should street protests continue over the June 12 presidential elections, Iran's supreme leader has also done a service by clearing up confusion about the direction of events. By reiterating that the election was fair -- and doing so before an official reply to his request for a verdict on the polling from an oversight board -- Khamenei also underscored that the issue isn't whether the votes were counted correctly; rather, it's the sanctity of his own authority.

He intends to stay in power. And he intends for Mahmoud Ahmadinejad to remain president.

The ball is now in the court of opposition candidate Mir Hosain Mousavi, and the hundreds of thousands of green-clad protesters who have marched through Tehran for the last week. A new rally is scheduled tomorrow after a one-day interregnum.

If the crowds return to the streets in the same numbers, they provide their own clarity.

Brinksmanship in Iran

Yesterday, a close friend told me that he ultimately expects the Iranian regime to crush the street protests in Tehran using "a Tiananmen." One can validly reach that conclusion, hearing government officials threatening execution of protesters, and continuing to raise the specter of the Velvet Revolution to describe what they clearly regard as a mob.

Yet, the government continues to concede ground to the protesters; despite the blockage of Internet and so forth, the Guardian Council -- the body designated to investigate allegations of election fraud last Friday, has offered a meeting the day after tomorrow with the opposition presidential candidates including Mir Hosain Mousavi.

And then there are the compellingly large, continued street demonstrations.

Since brinksmanship is not a matter of simple arithmetic, there in fact is no way to project how this ends up.

In a smart analysis At RFE-RL, the perspicacious Geneive Abdo sees a power shift coming from the tumult, but the balance of power remaining in current hands for at least another decade -- until the leaders of the 1979 revolution leave political life. Support of Hamas and Hezbollah will remain, in addition to development of nuclear technology. What do the younger generation want once they do have power? Not "a government that shuns Islamic principles or even a state that does not include clerics, as some in the West might think," writes Abdo.

"Instead, they want free and fair elections to choose their own leaders; social freedom, now denied them by strict interpretations of Islamic law; and they want Iran’s militias to stay out of their private lives. They also want uninterrupted access to technology, which includes the Internet and social networks."

Update: The Wall Street Journal's Jerry Seib, who has deep experience in Iran, weighs in with a list of possible outcomes, both optimistic and pessimistic. Seib, too, thinks the situation is impossible to predict.

Giffen Watch: Former Kazakhstan Consultant Cannot Examine CIA Documents

The latest from the federal courtroom hosting the foreign bribery case of uber-middleman James Giffen is that only his lawyers can examine files disgorged from the Central Intelligence Agency. Unless the CIA grants specific permission for a requested document, Giffen himself cannot look at the classified material.

That's from a decision issued by federal Judge William Pauley in New York. The ruling was handed down June 5th, but I haven't seen it published anywhere. At the time of Giffen's 2003 arrest, it was the biggest U.S. foreign bribery case since the law was enacted in 1977.

The 68-year-old Giffen has a long history of business in the Soviet Union and then Kazakhstan. Starting in 1969, he stood as a middleman in deals between American businesses and Soviet enterprises. In 1987, he introduced Chevron to Mikhail Gorbachev, leading to the company's eventual acquisition of the supergiant Tengiz field in Kazakhstan, its single-biggest oil property. After the Soviet collapse, he cozied up to Kazakhstan leader Nursultan Nazarbayev, becoming his main oil adviser and, for a time during the late 1990s, the go-to middleman for any major oil deal in the Central Asian country.

Six years ago, that world came tumbling down when Giffen was arrested at JFK. The charges are that, as Nazarbayev's consultant, he channeled some $80 million in payments from American oil companies to European bank accounts held by the Kazakh president and other leading Kazakhs.

As discussed last month, the CIA documents represent Giffen's last line of defense. He claims that the entire time he was working with Nazarbayev, he was also briefing U.S. intelligence agencies. As effectively a U.S. intelligence asset, Giffen says, he believed his actions were approved by the U.S. But to prove his case, he argued that he required access to classified documents.

The case has been stalled until now over the documents -- most of the time, the CIA simply refused to cooperate with the prosecution; now it is cooperating, but it doesn't want Giffen himself to have automatic access to the classified documents.

In April, Judge Pauley sided with the CIA's position, as channeled through the prosecution. Giffen's lawyers asked him to reconsider; the argument went that Giffen himself might notice aspects of the documents that his lawyers wouldn't.

Pauley ruled against Giffen. The next hearing is Sept. 23d. William Schwartz, Giffen's lawyer, declines to comment.

Iran: The Power of Memory

As suggested in previous days, the decisive factor in who prevails in Iran is command of public perception. Regardless of the true result of last Friday's election, if Mahmoud Ahmadinejad can persuade sufficient numbers of Iranians that he is the legitimate victor, the game is over. If he cannot, the opposite is true -- he and the entire clerical and military edifice behind him are in trouble. Defensive measures would then be required in order to save the regime.

Events of the last two days appear to show that Ahmadinejad is losing this battle. This is why we are witnessing such astonishingly rapid-fire concessions from the heretofore stone-faced government. That includes supreme leader Ayatollah Ali Khamenei's order that the election be probed, the subsequent repetition of this order every 15 minutes over state-controlled radio, and the announcement today of a partial vote recount.



So what is in the minds of Khamenei, the powerful clerics who stand alongside him, and the rest of the regime?

It has to be 1979. It is the subtext of the entire drama in Iran.

Both those backing Ahmadinejad and those behind Mousavi recall viscerally that they once brought down a seemingly immovable regime, that of Shah Reza Pahlavi. And the youth who are too young themselves to have observed or participated in the taking down of the Shah have heard sufficiently detailed stories about it from relatives, friends and teachers to possess vicarious experience of the event.

Knowing and feeling how it was once done -- quite recently indeed -- makes both sides grasp what those crowds numbering in the hundreds of thousands mean. Once you've done it once, the usual doubts about capability -- from one side, can we really do it; from the other side, there is no way that mob can unseat us -- vanish.

What unfolds next will be reaction to this potent memory.

Listening to Contrarian Voices on Iran

Ken Ballen and Patrick Doherty conducted a fascinating poll of Iranian voters prior to Friday's presidential election. Published as an op-ed in today's Washington Post, it concludes that Mahmoud Ahmadinejad's official triumph isn't as outlandish as some think. Three weeks ago, the Iranian president was leading by a 2-1 margin, according to this poll.

Whether or not the poll accurately reflects what happened on election day -- the authors are credible; Doherty for instance is from the New America Foundation. They say the poll was financed by the Rockefeller Brothers Fund -- it suggests that caution is in order for those convinced of rigging.

For an excellent take on what the election says about Iran's ultra-emboldened power structure, have a look at this piece by New York Times executive editor Bill Keller and reporter Michael Slackman. Keller is reporting in Tehran.

While leading contender Mir Hosain Mousavi spent the last several weeks alarming powerful clerics by challenging social mores and urging his followers to take to the streets, Ahmadinejad has continued his careful cultivation of supreme leader Ali Khamenei. He has made himself the indispensibly "shrewd and ruthless front man for [Iran's] clerical, military and political elite," Keller and Slackman write.

The Associated Press is making much of Khamenei's order today for the Guardian Council to evaluate Mousavi's charges of rigging. AP writers Anna Johnson and Ali Akbar Dareini call the move "stunning." Read the text. To my ear, it sounds equally possible as an off-handed sop to Mousavi.

Iran: A Matter of Appearances

Is there the possibility that Mahmoud Ahmadinejad did win re-election Friday? The answer is yes. But it isn't the most important question. Neither, really, is whether the winner was his chief opponent, Mir Hosain Mousavi.

The most crucial question is the appearance of legitimacy. Whether or not Ahmadinejad in fact did win the most votes, if sufficent numbers of Iranians conclude that the result was fair, he and the clerical circle surrounding Ayatollah Ali Khamenei are probably secure for the next four years.

But if Iranians conclude the opposite, the ruling class could lose the veneer of legitimacy. Considering Iran's history -- in particular how the regime itself came to power -- that could be perilous for its survival.

The government seems to perceive this danger. As Ahmadinejad's landslide triumph collided with the pre-election expectations of many Iranians, the government detained dozens of opposition leaders and members, and continued to sever social networking among Iranians -- text-messaging, Facebook and so on. As for Mousavi, though he issued a statement today -- calling for the election result to be overturned -- he has vanished from the public eye.

This space has argued for the last week that the pre-election public anointment of Mousavi -- on the streets of Tehran and in the columns of blog and newspaper writers -- was premature. All alert Iranians are aware that their electoral system is tightly controlled by Khamenei's circle. Mousavi was open-eyed to the prospect of a staged result; hence his declaration of victory before any vote totals were announced, a move that makes sense only as an attempt to seize the post-election initiative. Mousavi either knew or should have known that this result was possible, and should have been prepared for it. If he wasn't, he doesn't deserve to be president.

The battle for legitimacy is already under way. As one data point, Al-Jazeera's Teymour Nabili points out that Ahmadinejad was declared the victor even in Mousavi's native city of Tabriz, the capital of Iranian Azerbaijan. Mousavi himself is Azeri, who are "among the tightest ethnic groups in the country, unfailingly voting along ethnic lines," Nabili wrote. "In the 2005 presidential election, Mohsen Mehralizadeh was a largely unknown and wholly unsuccessful candidate. He came in seventh and last, and yet he still won the Azeri vote in the Azerbaijani provinces."

This phenomenon -- that of opposition supporters purportedly failing to vote for their own candidate on election day -- is an age-old indicator of a stolen election. My own first experience of this was in the Philippines. I recall one witty parliamentary candidate in notorious Ilocos Norte who was thumped by the incumbent, 100%-0%. In explanation of how this was possible, he responded that even he didn't vote for himself.

Carnegie's Sadjadpour doesn't think the protests so far are "significant enough to cause any type of existential threat to the regime." Khamenei's circle, he says, probably presumes that opposition unhappiness will peter out after a week or so.

That could be a safe bet. Yet legitimacy is a precious commodity. Once one loses it, the rest is a running battle.

Updates: Mousavi issued a statement saying he is under house arrest and is banned from appearing in public, according to the Wall Street Journal's Farnaz Fassihi. A previous such report turned out to be false, and Fassihi notes that the government has not confirmed this one. Separately, I just ran across Nader Uskowi's excellent news blog on Iran. I highly recommend it for those interested in straight-forward coverage, videos and insidery news.

What Ahmadinejad's Declared Victory Means

Iranian President Mahmoud Ahmadinejad's officially declared re-election today may reflect the following not-altogether-surprising calculus by the nation's ruling circle: Victory by Ahmadinejad was validation of pre-eminent ruler Ayatollah Ali Khamenei and his clique; a triumph by any of his rivals, conversely, was revolution.

Supporters of Ahmadinejad's chief rival, Mir Hossain Mousavi, appear not to be giving up -- they are issuing full-throated declarations that Mousavi won.

What happens from here can't be predicted. But the regime's attitude -- meaning the context in which events will play out -- is crucial. Leaders of Iran's Revolutionary Guards the last few days have equated Mousavi's apparent surge of popular support to an incipient "velvet revolution." As noted previously, the analogy to Czechoslavakia's 1989 overthrow of Communism is striking. It means, as suggested above, that a Mousavi victory was rejected in leading circles -- it would not be genuine election by popular vote, but rather an invalid seizure of power.

That is not surprising, since it is precisely how most leaders in the region regard political opponents.

The ruling circle surrounding Khamenei predicted that Mousavi's people would go to the streets were he to lose. Therefore, look for a violent crushing of protests if they do. Again as previously discussed, the models to look at are Uzbekistan 2005 and Putin's Russia.

Why Fear of Velvet (Roses, Oranges, Tulips and other Colored Threats) Could Influence the Outcome of Iran's Elections

On the eve of tomorrow's Iranian presidential election, a senior officer in the influential Revolutionary Guards has come right out and expressed the conservatives' fear: Opponents of President Mahmoud Ahmadinejad are trying to mount a "color revolution."

If Ahmadinejad wins re-election, the likelihood for game-changing U.S.-Iranian diplomacy -- including a break in the Moscow-Tehran diplomatic alliance that frustrates pipeline and other economic advances in the region -- will be dampened. That's because Ahmadinejad isn't likely to tone down his often-belligerent rhetoric sufficiently to allow normal diplomacy to take place.

Hence the import of the latest reporting out of Tehran. As The Washington Post's Thomas Erdbrink reported today, Gen. Yadollah Javani, head of the political office of the Revolutionary Guards, said, "Any movement for a velvet revolution in Iran will be nipped in the bud."



Javani of course is referring to the 1989 Czech Velvet Revolution that ushered out Communism, in addition to the clutch of uprisings it helped to inspire -- Georgia's Rose Revolution of 2003; Ukraine's Orange Revolution of 2004; and Kyrgyzstan's Tulip Revolution of 2005. (On the latter, my former Wall Street Journal colleague Alan Cullison has an excellent page-one piece today on Russia's gain and the U.S. loss as the Kyrgyz revolt has turned sour. )

For the dictators of the world, these revolts were shuddering events. In response, Russia's Vladimir Putin formed his thuggish nationalist movement called Nashi. According to some, the revolts were one reason for Uzbekistan President Islam Karimov's murderous crushing of the 2005 Andijan protests.

And now we know that Iran's ruling class feels similarly. What specifically appears to have triggered Javani's remarks are the enormous, green-clad crowds that have marched through the streets of Tehran in support of Mir Hossain Mousavi. Ahmadinejad has attracted his own large crowds; he is an excellent campaigner, a populist who knows the power of pork-barrel politics, enjoys blanket coverage by state-run television, and appears to enjoy the direct backing of paramount leader Ayatollah Ali Khamenei.

The New York Times' Robert Worth writes today that former Iranian President Hashemi Rafsanjani, who was defeated by Ahmadinejad in the 2005 elections, is operating a war room to help prevent official cheating. Rafsanjani is dispatching an army of election monitors around the country

(Note to Rafsanjani: The most pernicious election-cheating around the world occurs not during voting, but long afterward, indeed after the local counting. Specifically, it occurs in the computer rooms of the central election commissions that are both responsible for tallying up the count, and answerable to the country's incumbent leaders.)

Given the general belief that Iran's democracy is a relatively regulated one, what will be the impact of this apparent attitude toward the turnovers of power in the above-mentioned nearby countries? If Mousavi does as well as many predict -- if he wins outright, or forces a second round of voting -- will the announced count reflect this result?

Officials like Javani assert that this gets at their beef -- the opposition, they assert, are prepared to strongly protest the election results regardless of whether Ahmadinejad genuinely wins. That could be true.

Reporters on the spot are calling this Iran's most vigorously contest election since the 1979 revolution. They say, for instance, that it's the first time that women have been so centrally involved. These facts lay on the opposite side of the equation from the official fear of colored revolution as Khamenei decides how to respond tomorrow as the election results come in.

Internet Appearance Tonight

For those interested in a live discussion, I'm appearing in an hour-long streamed broadcast at 10 tonight EDT World Streams Radio. I think half of that will be talking, and the other half questions. There is a call in number in the link.

Mulling Over Why Oil Prices Have More Than Doubled

We return to the matter of oil prices, the questions being: Why have they more than doubled over the last four months; and are they headed still higher in the short term?

Oil today closed above $70 a barrel for the first time in seven months. As a memory-jogger, they were at $33 just in February. But unlike the last explosion in prices -- to $147 a barrel 11 months ago -- no one seems to be ruling out a role on the part of speculation.

Indeed, as the Wall Street Journal’s Ben Casselman has noted, there appears to be a broad consensus that billions of dollars in speculative money has settled in oil, thus driving up the price. The reason is that traders and investors are buying crude, among other commodities like copper, as protection because they don’t want to hold dollars whose value has been weak and volatile.

There is much said about “fundamentals.” That is, more than 2.6 billion barrels of oil is in storage around the world – including some 130 million barrels just on ships that are trolling global waters until prices go up -- and demand shows no sign of recovering. This thinking goes that the speculators have canceled out these fundamental truths.

But, isn’t it possible that the collapse in oil prices to $32 was in itself an overshoot, and that oil is at a truer balance in the $60- to $70-a-barrel range?

That seems as rational a view as any I have heard. Yet, at Alaron Energy, Phil Flynn attributes much of the price runup to Ben Bernanke over at the Federal Reserve. Flynn, normally among the clearest communicators among observers of the market, has been resorting to economic gobbledy gook for weeks about an obscure economic practice called quantitative easing.

So that O&G readers are not forced as I was to troll the Internet and confer with colleagues about this term, we are talking simply about the Fed buying federal assets like treasury bonds. By taking the Fed’s money, the sellers of these assets now have oodles of cash burning a hole in their collective pockets, Flynn argues. And what are they doing with it? Among other things, according to Flynn, buying oil.

John Authers at the Financial Times argues – probably rightly -- that the Fed may keep its current policy in place for some time. But Flynn says that the futures market suggests that the Fed may move quicker than some expect.

Of course, the longer-term trend is clear. Oil prices seem likely to spike again sooner or later because oil companies have halted so many exploration and drilling projects that, when the global economy recovers, there is probably going to be an oil shortage. And we all know what happens in oil shortages.

Choosing Iran's Next Leader

Does Mir Hossain Mousavi have a genuine chance to defeat Iranian President Mahmoud Ahmadinejad in Friday's elections? Or is he simply the latest beneficiary of the predilection of reporters and pundits to make a wishful-embrace of electoral challengers in dictatorial nations?

At O&G, we are closely watching the first round of Iran's presidential election because of the potential game-changing impact on natural gas politics in Europe: At once, a less populist leadership in Tehran could help lower the diplomatic temperature, thus opening the door to genuine talks with Washington, and possibly a deal that, among other benefits, ultimately unfetters the development of Iran's sanctions-crippled natural gas fields.

A string of reports over the last 10 days or two weeks has built up much expectation around Mousavi, a 67-year-old ethnic Azeri intellectual who served as a revolution-enabling prime minister two decades ago.

In The New York Times today, Robert Worth describes a "screaming, honking bacchanal" at night in Tehran surrounding Mousavi's campaign, and a poll suggesting a 54%-39% edge over Ahmadinejad.

The key moment that has electrified observers is last Wednesday's televised debate between Ahmadinejad and Mousavi. Reports are drubbing Ahmadinejad for attacking Mousavi's wife, Zahra Rahnavard, who is campaigning for her husband and held a high-profile news conference at which she demanded an apology from Ahmadinejad. CNN reports that some have dubbed Rahnavard "Iran's Michelle Obama." At the Impudent Observer, Fred Stopsky wonders whether Rahnavard is "the secret weapon to unseat Ahmadinejad."



Much of the reporting of the debate itself reflected surprise verging on delight at Mousavi's willingness to mix it up with Ahmadinejad. Yet -- injecting caution here -- the Financial Times' Najmeh Bozorgmehr seemed to see something different. Bozorgmehr focused on how Ahmadinejad "went on the offensive," and suggested that, while Mousavi did much attacking himself, he spent most of the 90 minutes parrying, not thrusting. In another report today, Bozorgmehr points out that Ahmadinejad himself is enjoying raucous support in rural areas, in large part because of his deftness at the universally practiced tactic of pork-barrel politics.

As suggested above, such pre-election public anointments are far from unusual. Apart from what occurs in the West, I've witnessed similar dynamics in the Philippines, in Pakistan, in Georgia, and in Russia. Often the candidates do actually win. But not always, and even when they do win, they don't always usher in finer times.

The clear-eyed Karim Sadjadpour at the Carnegie Endowment writes that Iranian elections are still "unfree, unfair and unpredictable." Sadjadpour says that Iran's true center of power -- surrounding Ayatollah Ali Khamenei -- could be on the cusp of one of the country's occasional political self-corrections because of Ahmadinejad's "economic mismanagement and foreign policy adventurism." But he adds that, until now, such corrections have occurred after two presidential terms. Ahmadinejad has served just one.

Il Petrolio E La Gloria

I'm thrilled that O&G's Italian edition has come out, published by Sirente. Perhaps no other oil company has better capitalized on the Caspian era than Italy's Eni, whose mastery at personal relationships in Kazakhstan and Russia has changed it from a tiny, parochial company into a huge player internationally. This edition has a new afterward, updated through April of this year. Welcome to Italian readers.

On the Trouble in Blogistan

Earlier this week, the Financial Times' Isabel Gorst wrote a nice piece on trouble in what she called Blogistan -- a threat to free use of the Internet in Kazakhstan, and the link between that and the publication of former first son-in-law Rakhat Aliyev's tell-all book, Godfather-in-Law. (RFE-RL's Andrey Shary interviewed Aliyev about the book.). I noticed some Facebook traffic on the Internet problems in Kazakhstan as well, and asked frequent O&G contributor Sasha Meyer to weigh in on the topic. His story follows.

By Sasha Meyer

The debate on whether free markets and liberal democracy can take root in Central Asia has been going on for two decades. Both proponents and those who disagree with them will soon have a big opportunity in the form of a huge new audience to persuade.

Vint Cerf, the father of the Internet, and Tim Berners Lee, the inventor of the Web, have noted recently that the mobile web has finally taken off. And Central Asia is keeping up with the trend: Telecoms in the entire region -- Kazakhstan, Uzbekistan, Tajikistan, Turkmenistan and Kyrgyzstan -- are rolling out mobile broadband. These countries got started with next-generation wireless services even earlier than Russia, which is usually first in the former Soviet Union to adopt new technologies, according to Pyramid Research.

Wireless Internet is likely to spread fast in Central Asia for two reasons. First, it is cheaper to deploy than copper and fiber-optic technologies, and the rollout will be seen as a mere upgrade by millions of consumers who already have a cell phone. Secondly, the costs of hardware are falling. Phone and computer makers, facing saturated markets in the rich world, have been focusing on developing nations. Predictably, they are offering their wares at lower prices in poor countries. A sub-$35 handset, capable of delivering both phone calls and Internet access, has been available since 2007, thanks to a campaign by GSM Alliance, a telephone industry group, to develop a web-capable phone for all.

Similarly, in computers, the netbook, a small laptop, went on sale in 2007 for $300 apiece, a previously unheard of price for a computer. Phone companies plan to or already do offer these computers free or at subsidized prices to entice new customers, just like they do with mobile phones. The drop in netbook prices is forecast to go on; Nvidia, a chip maker, wants to bring the figure down to $100.

Such expectations are favored by supply-and-demand dynamics. While laptop and desktop chip production is dominated by the Intel-AMD duopoly, the market for netbook chips is fiercely competitive, with at least four more companies in the game. Furthermore, rivalry among computer manufacturers is also hotting up. On the demand side, netbooks are a huge hit in Asia, and will also remain popular with Western consumers who opt for cheaper alternatives during economic recession.

All that means millions more ordinary Central Asians will start using the web in the next couple of years. These newcomers to the Net will be distinct in that most will speak no English or Russian (those who do are already on line). But there's a dearth of content in local languages, which represents a big opportunity for those who are in the business of delivering news or shaping public opinion.

Some are better prepared than others. Radio Liberty has websites in almost all of the languages, complete with podcasts; its Kazakh service has a blog to boot. Voice of America's Uzbek TV programs have a YouTube channel and a Facebook presence. And Kremlin's Voice of Russia plans to take its Uzbek and Kyrgyz services online. This growth in Net users will also offer a reach-boosting opportunity for NGOs that provide news analysis, such as IWRP and Eurasianet (the latter will likely follow the former's example and expand beyond Russian and into local languages).

As to how, some recent studies might offer a hint. People in BRIC countries – Brazil, Russia, India and China – are using mobile web to access primarily not information but entertainment, according to a Nielsen Media study.

One possible format worth emulating then is that of the HuffingtonPost, a decidedly political website that mixes serious reports with entertainment news and the latest in celebrity lifestyle. On the other hand, research by Andrew Odlyzko, a well-known Internet expert, suggests a different approach. Odlyzko found that content is not king: People have always used a new technology not because it offered content, but rather because it connected them with others. In practical terms, that would mean a Craigslist in Kazakh or Uzbek might be as valuable as a HuffingtonPost in those tongues.

With millions more going on line in Central Asia in the near future, an opportunity opens up for the U.S., the EU and Japan as well. The G7 could help boost civil society discourse in the region by providing connectivity that is not vulnerable to censorship, thus ensuring a level playing field for all viewpoints.