Accumulating Shoes

We now have a better understanding of why the consortium developing the biggest new oilfield on the planet has expeled its boss, Italy's Eni -- yet another two-year delay has been announced in first oil from the offshore Kazakhstan field. From a contractual startup of 2005, the Eni-led consortium now says it will produce its first barrels from Kashagan as late as 2013, according to a statement by Kazakhstan Energy Minister Sauat Mynbayev.

So yet another shoe drops in Kazakhstan. This pearl of a field -- depending how technology advances, Kashagan contains anywhere from 15 billion barrels of recoverable reserves and up. That's fifteen elephants, the industry term for a monster oilfield -- has been beset by so many delays that one wonders when it truly will come on line.

Mostly at fault are the problems bedeviling the entire industry -- spiraling production costs, and a shortage of equipment and labor (Note to college-age O and G readers: if you study engineering or geology, you are all-but guaranteed a well-paying job).

Yet Eni has long seemed far over-stretched. From a tiny state-run oil company in the early 1990s, it has grown into a hugely successful heir to the Seven Sisters, the most successful of the West's Big Oil companies at finding comfort with the world's autocrats. Where its brethren bicker with Hugo Chavez and Vladimir Putin, Eni has found a comfortable embrace.

But that's resulted in an embarrassment of riches. Eni has too much on its plate. A few months ago, Eni lost its operatorship of Kashagan. Publicly that act was attributed to Kazakhstan's new assertiveness and demand for an equal share of Kashagan. But it's clear that Eni's partners in the field themselves would have acted sooner or later.

The problem with banks: My former colleagues at The Wall Street Journal published a scoop yesterday on the ongoing saga of some $80 million in Swiss deposits belonging to Kazakhstan President Nursultan Nazarbayev and a couple of associates (since a subscription is required to view, I found this link to another site). It's written by Glenn Simpson, Susan Schmidt and Mary Jacoby.

Some nine years after the money was frozen in a money-laundering investigation (the cash came from U.S. oil companies that got deals in the 1990s in Kazakhstan, including at Kashagan), the Kazakhs have said they are willing to give up the money for charitable purposes. Yet the money remains frozen, according to the piece, in part because the U.S. says the charities that the Kazakhs have in mind are too closely linked to the Kazakh government.

Photo: Joe Shlabotnik

Rights: Creative Commons

Will No One Have Sympathy for a Fallen Middleman?

Readers of O and G know that Dutch oil trader John Deuss has led a largely charmed life. He earned hundreds of millions of dollars as one of the world's premier oil traders in the 1970s and 1980s. He went into oil drilling in the U.S. and Nigeria. And, in terms of the Caspian, he was in the middle of one of the era's high-tension geopolitical gambits, tying up Chevron for a couple of years in the construction of a big oil pipeline from Kazakhstan's Tengiz oilfield. To get him out, Chevron had to muster the combined weight of the U.S. government, the World Bank, and the European Bank for Reconstruction and Development. Still, it required the death of his chief patron in the Sultanate of Oman before he finally threw in the towel, and went on to new adventures. Here he's pictured in the 1970s, when he ran his own magazine, called Chief Executive.

But the jet-setting life seems over for Deuss, who for almost two years has been embroiled in legal trouble in the Netherlands and the U.K. in an investigation of his banking activities in Bermuda and Curacao. I'm told he's not living the high-life any longer. And a court in Bermuda recently rejected his latest effort to clean up his name.

One problem is that he can't seem to cash out of the accouterments of big wealth. His 187-foot sailing yacht Fleurtje, on which he wined and dined western oilmen during the Caspian era, has been on sale for about $14 million since late 2006. No buyers.

He's had no better luck in the sale of Windsome Farms, his uber-luxurious, 123-acre estate and champion horse-raising facility in Wellington, Florida. One O and G reader tells me it's going for $62 million. But an ad says Deuss wants $49 million. Whatever the case, you must take a peek at the photos in the link. It looks pretty relaxing (as does the yacht). Here's a map of its location.

Perhaps one of the Caspian's nouveaux riche is looking for a ready-made throne?

Latest Score in Love versus War

In recent months, Italy’s ENI has seemed to have hit upon the winning formula in Big Oil’s battle for survival against the march of petro-states across the globe. ENI chairman Paolo Scaroni’s approach has been simple – jump in bed with your adversary. So you have had ENI saddling up with Russia’s Gazprom, Hugo Chavez’s PDVZA, and most recently Qatar Petroleum.

Scaroni’s strategy has been the polar opposite and, so far, more successful than ExxonMobil’s confrontational style toward the more assertive petro-states such as Russia and Venezuela.

But a scoop by Guy Chazan in today’s Wall Street Journal shows that co-habitation goes only so far. Turkmenistan, for instance, is so miffed with ENI that it refuses to issue visas to its senior executives. That’s important, because Turkmenistan is one of the world’s only largely untapped petro-states welcoming exploration offers from Big Oil. Chevron, BP and others have put much effort into winning access to fields there.

Based on ENI’s record, don’t be surprised if Scaroni himself tries to swoop into Turkmenistan to smooth over the situation.

Photo: Chrispitality
Rights: Creative Commons

Baku oil legend Nikolai Baibakov Dies at 98

As readers of O and G know, many historians think the second half of the 20^th century would have been dramatically different had Hitler’s troops reached Baku. Hitler needed Baku’s oil to fuel his war machine, and when his army failed to penetrate the Caucasus after its 1941 invasion of the Soviet Union, it was the beginning of the end for Nazi-era Germany.

Just in case Hitler’s troops were not stopped before they reached Baku, Stalin entrusted one man with making sure that the Nazis could not avail of the city’s legendary oil. This man, who ordered the fields plugged up with cement, was Nikolai Baibakov, who died yesterday in Moscow at the age of 98.

Baibakov – Stalin’s oil commissar and for two decades the director of Soviet economic planning – was born in the Baku oilfield of Sabunchi; his father had worked in the Baku oilfields before him. So he knew intuitively what Stalin was so worked up about. A superlatively colorful actor in the biggest events of recent history, Baibakov recalled with black humor some of his encounters with the murderous Stalin.

In a 1998 interview with The Petroleum Economist, Baibakov said Stalin pointed two fingers at his head and said, “If you fail to stop the Germans getting our oil, you will be shot. And when we have thrown the invader out, if we cannot restart production, we will shoot you again.”

Those were the tenor of the times. Oil engineers from Baku, accused of crimes such as being the relative of the Czarist-era oil barons, were loaded into railcars with their families like cattle and shipped to Siberia to start new oilfields.

A New York Times obituary quotes Baibakov's reply as to whether his fellow oil officials were shot during those days: “Yes, several.”

Then, as now, Russia’s entire economy was dependent on oil and the revenue from oil exports

C. Boyden Gray: Ho-hum on the Caspian

The Bush administration has finally named a senior diplomat to challenge Russia in the pipeline war in Europe. He is C. Boyden Gray, the Bush family friend and GOP partisan lawyer.

As O and G readers have read over the previous months, Russia and the West, particularly the U.S., have been in fierce competition to control the natural gas supply to Europe, and ultimately to influence the continent's politics. Under Vladimir Putin's determined, hands-on leadership, Russia has been far in the lead and, unless something changes fast, will win the contest.

Hence a push within some circles, including Senator Richard Lugar specifically and the Senate Foreign Relations Committee in general, for Washington to get serious by naming a prominent senior statesman to spearhead the U.S. effort. The first nominee was Thomas Pickering, but his personal finances turned out to be a conflict of interest. Then, someone suggested Bush family friend Donald Evans, the former Commerce secretary, but that also went nowhere.

Now the administration has settled on Gray, who was counsel to George H.W. Bush, and named as a recess appointment by President Bush as envoy to the European Union when the Senate refused to confirm him.

Gray comes from similar aristocratic stock as the Bushes -- with inherited wealth, his father was secretary of the Army under Harry S. Truman, and his grandfather was chairman of R.J. Reynolds Tobacco. He graduated from Harvard, and clerked under Supreme Court Chief Justice Earl Warren.

I'm perplexed. Is this the man to general the West's battle against one of the world's consummate players of brutal market economics, namely Vladimir Putin?

To find out whether I'm simply out of the loop, I took a sampling of some of the best-connected readers of O and G. As usual, this sampling will be anonymously sourced:

1. "Doesn't sound like the person we need to bring some coherency to our policy in that part of the world."

2. "(The Senate Foreign Relations Committee) pressed Condi hard to DO SOMETHING, so, [this is] more or less her saying ‘Get this off my plate!’ This was the political compromise. Politics, not grand strategy.”

3. "[Gray's] pluses -- close to the White House, maybe gravitas (but he is a pompous ass), smart guy. Minuses -- intensely partisan, loves to hector the EU, does not know energy, [does not speak] Russian. Bottom line -- not great but could be worse."

4. "Really lousy appointment. Can hardly think of anyone worse."

What's obvious is that no one of significance would accept the appointment. Which is why you have Rice simply adding new duties onto an existing envoy's portfolio. Which is also why the announcement was made in a one-paragraph statement issued with no fanfare.

In other words, this is a dull spearhead.

Guest Column: Khanna Explains The Second World

Today we have the pleasure of helping to launch a terrific new book. It's The Second World: Empires and Influence in the New Global Order, by Parag Khanna, director of the Global Governance Initiative at the New America Foundation. I asked Parag to write for the blog today not only because of the quality of his book, but because his travels took him through our turf, and he came away with a different take from my own in some cases, in particular about Gazprom. Without further ado, here is Parag's posting:

Thanks very much to Steve (with whom I share a terrific editor at Random House) for allowing me to post an introductory note on this esteemed blog about my book, which has been released today.

The book covers my travels through about 40 countries to look at their changing and increasingly multi-directional leanings, and focuses on societies that are increasingly divided socially, politically, and economically between haves and have-nots, winners and losers, first- and third-worlders -- hence the "second world." It's a happy coincidence that the countries of interest to O&G readers used to be called the "second world" until the term fell out of use. I spent quite some time in Ukraine, Turkey, Georgia, Azerbaijan, Kazakhstan, Uzbekistan and the like for my research.

I want to jump into two ongoing debates: Gazprom/Europe and the Shanghai Cooperation Organization/Afghanistan.

Very often Gazprom diplomacy and Russian diplomacy are taken as synonymous, and recently the two have appeared as well-coordinated as Chinese synchronized divers. But we should not forget last year's tiffs with Belarus, and the current bickering in Ukraine, both of which serve as examples of corporate logic undermining diplomatic logic.

Gazprom's demand that Belarus -- Russia's only major ally in the former Soviet Union (alongside perhaps Armenia and Tajikistan) -- pay market prices didn't win it friends other than those who saw bankruptcy and incorporation into a State Union with Russia as desirable. It also woke up EU members to the need to diversify fast.

And in Ukraine, the creation of RusUkrEnergo to continue Gazprom's bullying for constant pay-outs on amounting arrears has only alienated wider segments of Ukraine's leadership. One can only imagine that the population is as well, meaning that future election outcomes may not be as close a split between Russian and Western -leaning sides as has been the case to date. Gazprom logic would care little for such an outcome. But an increasingly Russia-skeptical Ukraine could abandon caution and welcome overtures from NATO more than it has to date -- making Putin's worst fear a reality. Diplomacy is about making friends, while corporations exist to make money. Unless Russia balances the two, oil and glory may not be forever connected.

Furthermore, the argument that Russia has Europe permanently over a barrel on gas supply assumes a long-term Russian stability while ignoring that it is Europe that can invest in diversification over the long term, drawing more oil/gas from North Africa, for example, thus gradually increasing its leverage over Russia.

The other issue is the recent talk of NATO reaching out to China (perhaps via the Shanghai Cooperation Organization, known as SCO, though Russia for obvious historical reasons wants no part in any Afghan operations) to potentially run a Provisional Reconstruction Team (PRT) in Afghanistan, or run one jointly with other nations, even the U.S. Apparently the offer was made, and China was enthusiastic, but their letter to the State Department is said to have gone unanswered for lack of coordination with NATO or a decision on how exactly to respond. So the U.S. may have dropped the ball. (Any updates/insights on this would be appreciated.)

Across the 'Stans, it's only a matter of time before NATO and SCO mingle ever more closely, and friction possibly occur. Rumors from on the ground (yet again) that the Kyrgyz might demand a shutting of America's Manas base have such maneuvering at their root. So concrete outreach between the two "alliances" beyond mundane briefings in Brussels would be where geopolitics and diplomacy intersect today. That could be quite exciting to watch unfold as NATO stands on the brink of failure in Afghanistan while Chinese and Iranian infrastructure projects -- such as in Tajikistan and Afghanistan -- move forward across the region, eventually allowing the two to connect safely overland.

Will it be the new Great Game or new Silk Road? I predict both: America continues to support political liberalization in the region, meaning some opening to greater cross-border flows, while also hoping to maintain lily-pad like bases across the region. From China's view, it too requires open borders to facilitate its exports while importing energy, and through the SCO sees itself ever more as a contributor to regional stability. Throw in Russia and Europe and you have a recipe for all the intrigue and mystery that characterized both the Silk Road and Great Game eras.

Thanks to O and G Readers

The Oil and the Glory is No. 15 on Foreign Affairs magazine's Best-Seller List of books on American foreign policy and international affairs. The ranking is based on sales at Barnes & Noble. Thanks for your support.

The Western Side of the Pipeline War: On the Brink of Failure?

Readers: apologies for the week-long absence. I am back from vacation. Now, on to the latest in the pipeline war.

Another domino has fallen in Russia's relentless advance in the European natural gas pipeline war. After Monday's visit to Budapest by Russia's probable new president, Dmitri Medvedev, Hungary's prime minister is expected to sign the deal in Moscow tomorrow.

That's after an astutely run offensive in which Medvedev and his mentor, Vladimir Putin, have already recently signed on Bulgaria, Austria and Serbia, not to mention the prize in the contest -- Turkmenistan. These countries are now Russia's partners in the construction of a huge new natural gas pipeline system, Moscow's aim being to project power into Europe through dominance of the continent's gas market. Mathematically, Moscow's aim would be represented as: Economic power = Political power.

After all this, is there any reasonable case favoring a rival pipeline plan championed by Washington and the European Union? Generally, my own rule of thumb in pipeline politics is that no deal is a deal until Sumitomo's lengths of steel cylinders actually arrive on the spot, and welding begins. And they haven't.

Consider the first battle of this East-West pipeline war -- over the Baku-Ceyhan oil pipeline, connecting the Caspian and Mediterranean seas.

On Oct. 11, 1998, The New York Times committed a stupendous blunder. As readers of The Oil and the Glory know, the newspaper's lead story that Sunday, written by my former colleague Steve Kinzer, declared White House-backed Baku-Ceyhan to be "on the brink of failure." Less than a year later, a deal for the line was a reality.

Kinzer's mistake was in focusing on the big picture and armchair analysts in Washington and London, all of which indeed did make the strategic pipeline look to be dead. What he and these pundits missed were the facts on the ground -- from Central Asia and the Caucasus, it was clear that the pipeline was going to happen. Principally, Azerbaijan President Heydar Aliyev -- who had his hands on 5.4 billion barrels of oil that floundering Big Oil was desperate to develop and sell -- wanted that pipeline. It helped that essential NATO member Turkey wanted the line, too, as did the 800-pound gorilla, the White House. But the main thing was the insistence of Aliyev -- the essential man on the Caspian. Big Oil had to build it, and today, it's mightily glad it did so, since it's delivering about 1 million barrels a day of oil onto the tight world market, entirely free of interference by Moscow.

Yet today Heydar Aliyev is dead, and the Caspian is surrounded by presidents with, to put it kindly, shorter geopolitical stature. Big Oil seems to be absent the big corporate personalities who in the 1990s got in the sauna with one or more of the Caspian presidents, downed some vodka shots, and emerged with rights to huge reservoirs. And the White House lacks the vision to assign a political heavyweight -- in the 1990s, it was Clinton and Al Gore themselves, in addition to National Security Adviser Sandy Berger -- to spearhead a deal.

As for the future, there's no sign of the Bush administration suddenly changing course. The word is that Condi Rice will appoint Bush family friend Donald Evans to general the western battle. But Evans lacks the star power for instant success, and the longevity -- he will be out once the next administration takes power next year -- to manage through sheer effort.

Big Oil has been slow to snag a natural gas deal in Turkmenistan that would jump-start the western-backed Nabucco pipeline. And, short of a trip to Camp David, Turkmen President Gurbanguly Berdymukhamedov isn't suddenly going to grow a spine.

Meanwhile, Putin and his protege Medevedev are running Moscow's battle plan personally.

So, at the risk of repeating the Kinzer Blunder, Nabucco does appear to be on the brink of failure.

Of course, lightning could always strike.

Photo: Axel Rouvin
Rights: Creative Commons

What's the Book About?

Shawn Miller of Critical Compendium had a slew of questions about The Oil and the Glory. Here is his interview.

The End of Big Oil

For those interested in the history and future of Big Oil, I've got a piece in The New Republic this week on how one or two of the companies might survive despite their stubborn resistance to change. TNR is a pay site but if you take a free trial subscription you can read the whole piece, plus a few other items that look interesting this week. Here are the first few paragraphs.


When historians one day dissect the long arc of humankind’s use of fossil fuels, they may very well zero in on October 9, 2006, as a turning point for Big Oil. That’s when it became clear that the major oil companies—the giants that had survived numerous predicted extinctions and gone on to ever-greater profit and influence—were undergoing a tectonic shift and would either reinvent themselves or die. It’s the day Moscow dashed the hopes of five major oil companies from three countries and announced that Russia itself, and not they, would develop the biggest new natural gas field on the planet, an undersea Arctic reservoir called Shtokman.

Shtokman is the oilman’s Angelina Jolie: much-coveted but out of reach. Experts believe it contains the carbon fuel equivalent of 23 billion barrels of oil—that in an industry that considers a field of one billion barrels gigantic. Shtokman alone contains sufficient energy to power all of Europe for several years, and the world’s big oil companies had sought rights to it for years.

In another time, Russia’s declaration that its natural gas behemoth, Gazprom, would develop such a field would have set off peals of laughter among Western oilmen. Gazprom lacked the know-how to keep production at its current fields from declining; how would it manage a technological feat under the deep, icy waters of the Barents Sea? But there was nothing humorous about Russia’s plans. Gazprom knew it wasn’t capable of drilling the field; instead, it planned to hire Big Oil to do so. Big Oil would be its employee.

That notion flew in the face of oil-industry orthodoxy, which says that big potential profits accrue to those who assume big risks. If a company developed an oilfield, it was rewarded with the gold star used by Wall Street to measure oil company value—the rights to “booked reserves,” in industry parlance. Booked reserves consist of how much oil and natural gas a company controls, and thus can sell at some point at, say, $95 per barrel or $260 per 1,000 cubic meters. The Securities and Exchange Commission measures booked reserves, and investors regard them as the main determinant of a company’s fundamental worth. Yet now Gazprom was suggesting stripping the Western oil giants of that incentive—they would be unable to book Shtokman’s natural gas. The industry mood has become even more somber over the last half-year as two European companies—France’s Total and Norway’s StatoilHydro— actually agreed to Russia’s terms.

The truth is that any of the oil majors—with the possible exception of Exxon Mobil—eventually would have. Why? Because oilmen know that, despite recent unprecedented profits—Exxon alone reported a record $11.7 billion in net income for the fourth quarter of 2007—they are on the decline. The combined booked reserves of the world’s biggest five companies have shrunk by almost 20 percent on average since 1999, according to a paper by Rice University’s James A. Baker Institute for Public Policy. Shtokman is a blueprint for how the major oil companies are increasingly being treated around the world. Today, state oil companies and ministries from countries like Venezuela, Saudi Arabia, and Russia control somewhere between 80 percent and 90 percent of the world’s known oil and natural gas reserves. And, over the next two decades and beyond, those countries are going to ask foreign oil companies to serve as their contract employees in the same way that Gazprom brought on Total and Statoil.

Big Oil, then—the indomitable giant symbolized by the pitiless John D. Rockefeller—is dying. At the very least, it will soon have to fundamentally change the way it does business. But the shock of Shtokman is merely a tremor compared with the coming revolutionary transition to a non- carbon energy economy. Big Oil could transcend its current woes and weather that future revolution—perhaps even lead it—if it reinvented itself as Big Energy, striving to develop renewable power sources like wind and solar, or even to deliver the industry’s holy grail: a clean energy mechanism that renders fossil fuels obsolete. True, no one yet knows what the revolution
will look like; but the odd thing is that, for the most part, the oil companies don’t seem to care.

continued (free trial subscription required)

Rice in the Race

The Bush administration has officially announced the high-profile Caspian Envoy position we’ve been discussing on this blog for some three months. This would be Washington’s point person in the contest for petro-influence with Russia in Europe.

In reply to a question before the Senate Foreign Relations Committee yesterday, Secretary of State Condoleeza Rice said she’s head-hunting for the position now:

“I do intend to appoint, and we are looking for, a special energy coordinator who could especially spend time on the Central Asian and Caspian region,” Rice said. She added, ``It is a really important part of diplomacy. In fact, I think I would go so far as to say that some of the politics of energy is warping diplomacy in certain parts of the world.”

Rice is right. Russia's Vladimir Putin is far advanced in his shrewd market strategy for dominating Europe's natural gas supply even more than Russia currently does. Putin has personally gotten most of the necessary approvals from other nations for three new natural gas pipelines stretching from Turkmenistan into the heart of Europe. Meanwhile, Washington is not yet out of the starting gate for its rival, Western-controlled pipeline system that also would begin in Turkmenistan.

But I have my doubts about Rice's seriousness given her singular focus on the Middle East as a legacy issue for the Bush administration. Even if she were actively seeking someone, it seems highly unlikely that this late in the administration she could get a commitment from anyone with enough star power to outplay the masterful Putin.

Someone such as Zbigniew Brzezinski or James Baker. And even if someone of that caliber did agree, he or she would likely be in the job just 11 months, until the next administration takes over, which doesn’t seem sufficient time to mold the Western plan into shape.

Back in November, it looked like U.S. super-diplomat Thomas Pickering was imminently to be appointed. In the end, I’m told that the lawyers couldn’t work it out given his position as an adviser to Boeing.

The most realistic question now may be whether it will be too late when the next administration gets up and running.

Photo: pingnews.com
Rights: Creative Commons

Another Death in England

England is seeming less and less safe for its multitude of political exiles. The latest death is a colorful Georgian businessman named Badri Patarkatsishvili (whom I will call Badri). British authorities say they expect to finish a post-mortem on the 52-year-old Badri today after he was found dead yesterday of a possible heart attack in the county of Surrey. As is their routine in unexpected deaths, they have handed over the case to their major crimes investigation unit. (Photo by Reuters' David Mdzinarishvili)

Badri’s possible enemies list isn’t short. Just a few short weeks ago, he lost in an election for president of Georgia against Mikheil Saakashvili. He has been charged there with plotting a coup and planning a ``terrorist attack'' on a government official. He denied the charges.

But Badri was best known as the main business partner of Russian oligarch Boris Berezovsky, who himself lives in England in political exile. That has put both Badri and Berezovsky on a black list in Russia. Both men have been charged with fraud there for allegedly stealing cars in the mid-1990s from AvtoVAZ, a company they controlled.

If the British deem foul play to have been involved, Badri's business dealings would also be in question. In his 2000 book on Berezovsky, American journalist Paul Klebnikov described Badri as Berezovsky's "primary emissary to the traditional underworld."

In a BBC report, Berezovsky said he had seen Badri yesterday. He said that Badri wasn’t sick but did complain about his heart. "I have lost my closest friend," Berezovsky said.

Pipeline War Watch—Russia’s Vladimir Putin has astutely assembled most of the pieces for a Gazprom triumph in its battle with the West to control Europe’s natural gas market, and win the political leverage that goes with it. By appearances, he’s got the main player on board – Turkmenistan, which has all the natural gas. And he also has the main countries along the route of his proposed South Stream pipeline – Bulgaria, Austria and even Serbia.

Now, Putin seems to be moving in to harden the market victory by tying up the second-tier buyers of Turkmen gas, the objective being to completely submerge the West’s comparatively amateurish, rival pipeline plans. The key second-tier buyers of Turkmen gas are Hungary, Slovakia and Poland.

Readers of The Oil and the Glory know that when middlemen show up, deals get murky. That’s the situation with this latest turn in the pipeline war. I’m told that two middleman companies – a Hungarian firm named Millander International, and a shadowy Ukrainian-Russian company called RosUkrEnergo – are working to seal a long-term contract selling Turkmen natural gas to Hungary. The deal would be signed by these two firms, Gazprom, Turkmenistan and Hungary. I am told that it could happen as early as this week.

Currently, no Western oil company has obtained rights to any Turkmen gas fields, so there’s no guaranteed natural gas to feed into the West’s proposed trans-Caspian and Nabucco pipelines.

Such Gazprom deals mean to keep it that way.

The Same Old Game in Uzbekistan

As they say, hope springs eternal. But when it comes to Uzbekistan, it's getting ridiculous.

Uzbekistan’s Islam Karimov, the former Soviet Union’s most malignant president, is engaged in one of his customary mid-rule alliance shifts. After a few years of bedding with Vladimir Putin, he’s showing some leg to his former intimate, Washington. He has released some political prisoners. He’s allowing Human Rights Watch to re-open its Tashkent office. He's again allowing NATO to use Termez as an entry point to Afghanistan.

All of this has triggered remarks by some human rights activists and State Department officers that Western sanctions against him are working.

But Karimov’s about-face is predictable. He has with regularity shifted between Russia and the United States since the 1991 Soviet breakup. What does not change are his main policies – iron-fist rule, torture and repression of his people, and impoverishing, Soviet-like economic policies.

It seems a quaint notion now, but in 1996, for instance, Karimov desperately wanted what was then regarded as the ultimate recognition in this part of the world – an official state visit to the White House. Washington rubbed its hands with glee, getting Karimov “in exchange” to agree among other things to currency reform, and to allow exiled opponents to return home. Within months of his Oval Office visit with President Clinton, however, it was back to the old Karimov – the currency reform was canceled, and opponents were arrested or forced back out of the country.

Now, Human Rights Watch says that Karimov’s release of political prisoners just before last week’s visit of a European delegation to Tashkent is proof that “sustained international pressure on Tashkent is effective.”

It means nothing of the sort. What it does mean is that Karimov remains a cynical – and shrewd – geopolitical player who knows precisely how to push the right buttons in both Moscow and Washington.

Photo: DGtal Plus Art & Photo
Rights: Creative Commons

Guest Column: Iran's Cold Winter

By Paul Sampson

Iran is in the grip of an energy crisis that has left homes without heating and electricity, forced the temporary shut-down of power plants, and even led National Iranian Oil Co to stop re-injecting gas into its onshore oilfields. How could this happen in a country with the world's second-largest oil and gas reserves, you might ask?

First, this year's winter has been the coldest in a half century; Turkmenistan cut gas supplies to Iran at the beginning of the year in a pricing dispute; and, President Mahmoud Ahmadinejad reacted very slowly to a national emergency.

Iranians I've spoken to say the trouble with Turkmenistan was entirely avoidable. Last autumn, Turkmenistan said that in 2008 Iran would have to remit much more than the $75 per 1,000 cubic meters, the extremely low price it had been paying. But rather than deal (what even Russia's Gazprom when the Turkmen raised the same gripe), the Iranians dug in their heels and -- hey presto -- had the taps turned off.

The Turkmen pipeline supplies remote northern Iran villages that are cut off from the mainland, so there was always going to be a problem. But, as the freezing weather started to bite, the problem became a full-blown crisis.

For Ahmadinejad, whose handling of the economy has been woeful at a time Iran is being squeezed by US-led sanctions, the energy shortages should be an embarrassment. Some analysts predict he'ill pay for his shortcomings with a hammering in next month's parliamentary elections, where his conservative rivals are expected to gain ground.

But don't bet on it; friends in Tehran have said over the past few days that Ahmadinejad is as confident as ever and, backed by the all-powerful Supreme Leader and his friends in the Revolutionary Guards, is setting his sights on being re-elected in June.

For some Iranians, that would be the last straw.

Photo: please!don'tsmile
Rights: Creative Commons

Guest Column: Wine and National Security

By Sasha Meyer

Wine is important. The drink can be a major source of revenue. For example, in Moldova winemaking accounts for 15% of the economy. It can even become a national security issue. Georgia, where wine is the third-largest export, has suffered a major blow since Vladimir Putin banned its wine imports.

Since then, Tbilisi has been trying to diversify its wine exports. Georgia has shown creativity, for instance by offering Jennifer Lopez half a million dollars to promote its wine (an offer the Hispanic celebrity declined). Overall, Georgia has been incrementally successful, getting its wines into some shops in Europe and North America. But a breakthrough has been elusive thus far.

Peculiarities of the wine market and emerging uses for grapes may offer Tbilisi a new opportunity. A study published in Wine Economics Journal found that getting on the radar of wine critics is a key. (The importance of gurus is corroborated by other sources, for instance in Robert M. Parker Jr.’s influence on patterns of wine consumption and the creation of new segments in the market.)

The study also concludes that continued critical coverage is useful, even if unfavorable at times. In other words, sending a bottle of Kindzmarauli for a review to Eric Azimov, Dorothy J. Gaiter and John Brecher and others could, in the long run, achieve as much as a pop star's expensive endorsement.

There’s also a new, emerging market for grapes. Resveratrol is a new health craze in the West. It’s extracted from grape seeds, skin and juice. Research shows that resveratrol can help delay many age-related diseases. Today, jars of resveratrol are in health stores in Europe, North America and online, where it retails for $20 each.

The market appears set only to grow: An American company is testing a resveratrol-based pill to fight diabetes. In Georgia, the loss of its biggest market combined with a bumper crop is forcing many to cut their vineyards, raising fears that the winemaking tradition could be lost. But resveratrol production could absorb some of the excess grape supply, make profitable use of residual byproducts of winemaking, and bring much-needed hard currency into Tbilisi's coffers.

Photo: ritingon
Rights: Creative Commons

Becoming Quieter on the Caspian

The prize in the Pipeline War is Turkmenistan. Russia and China -- especially the former -- are far ahead of the West in the contest. One reason has been their willingness to look the other way on the issues of human rights, rigged elections and presidents for life.

Chris Chivers of The New York Times weighed in over the weekend on the American response, which is to lower the volume on the moralizing.

There has been a U.S. policy shift on the Caspian, and that's to tell the presidents that they don't have to be like Norway to get along with Washington. As long as they stay on the good-behavior -end of the spectrum of the generally badboy former Soviet states, they're all right.

Some quiet diplomacy is needed in the region. The U.S. is right to give the benefit of the doubt, for instance, to Turkmen President Gurbanguly Berdymukhamedov as long as he continues to methodically dismantle the legacy of his predecessor, Saparmurat Niyazov.

The aim of the U.S. policy is to help to continue to carve out some long-term breathing room for the region from Russia by championing the trans-Caspian and Nabucco natural gas pipelines to Europe. So far, Turkmenistan has been more favorable toward Russia's competing system, the Nord Stream and South Stream pipelines.

Yet there's a line not to be crossed.

One is pandering. Chivers provides an astonishing public remark by Julie Finley, U.S. ambassador to the OSCE. Speaking to Kazakhs in Europe a couple of years ago about their seizure of unflattering newspapers, Finley said, “Maybe you saved some readers some waste of time, anyway.”

And a second is Uzbekistan. Chivers describes a recent visit to Tashkent by the apparently irrepressible Admiral William Fallon, commander of the U.S. Central Command. Fallon is seeking to help thaw currently frozen relations with Uzbekistan's Islam Karimov, who holds the distinction of being the former Soviet Union's most brutal dictator.

“I told them that we couldn’t do much about the past, but that we could look at the future,” Fallon said of his discussion with the Uzbeks.

With respect, that's incorrect, Admiral Fallon. There is no respectable future relationship with Karimov until, for starters, he proves that he has stopped torturing and killing his people.

Unlike some of the region's other leaders, Karimov took no road to post-Soviet ruthlessness. He began there. My own initial sign of that was back in January 1992, two weeks after the Soviet collapse, when I crossed the street from the Hotel Uzbekistan to talk to the Pulatov brothers at Birlik, the then-Tashkent-based opposition group whose office was across the street. At the bottom of the stairs was a pool of blood. Inside, I learned from the more active of the two Pulatovs -- Abdumanop -- that his brother Abdurahim had been knocked on the head with a pipe by an unknown assailant.

The situation has declined since. Karimov regards entreaties by westerners such as Fallon not as an opportunity to re-open a perhaps positive economic path for his people, but a display of weakness, evidence that he still calls the shots in the dance with the foreigners.

It will probably require Karimov going the way of Niyazov before normal relations with the West can resume.

Photo: saidanddone
Rights: Creative Commons

Guest Column: How the Pipeline War Will Turn Out

Hi, my name is Paul Sampson, a London-based journalist for the newsletter Nefte-Compass who shares Steve's fascination with energy-related intrigue in Russia and Central Asia. When Steve asked me to contribute to his blog, I agreed partly because I really enjoyed his book, which ranks alongside those two oil greats, The Prize and The Seven Sisters, and partly because I’ve never blogged before. This is my first effort, so readers please go easy and save your ammo (or polonium) for later. A quick disclaimer: These views are strictly my own and no-one else's.

As hard as it tries, the European Union and the United States are no match for the 800-pound Russian gorilla when it comes to pipeline politics. Russia’s natural gas colossus Gazprom and its masters in the Kremlin have so far successfully countered the EU- and U.S.-backed Nabucco natural gas pipeline. But can they actually stop Nabucco? My hunch is no. In the end, both Nabucco and the Russian-backed Nord Stream and South Stream pipelines will be built. And the EU and Russia will find a modus vivendi that keeps Gazprom powerful, but lets new suppliers such as Azerbaijan join the fray.

This is the way it has to be. After all, neither side wants a new cold war over gas supplies, do they? If Brussels and Moscow agree to work more closely on energy, then I see no reason why Washington wouldn’t go along.

It’s been an excellent 2008 so far for Gazprom and its chairman, Russia’s president-in-waiting, Dmitry Medvedev. Medvedev and his mentor Vladimir Putin signed a deal in Bulgaria giving Gazprom a 50% stake in the crucial European hub for South Stream, which Gazprom and Italy’s Eni plan to build under the Black Sea. Then Serbia's Boris Tadic gave Gazprom majority ownership of a trunk line into South Stream, plus a 51% interest in Serbia’s state oil company, NIS. Finally, the Russians won joint ownership of Central Europe's largest gas marketing hub at Baumgarten, the terminus for the West’s proposed Nabucco pipeline. According to Nefte Compass, Gazprom now has its sights set on a gas deal in Hungary.

These deals reveal the extent to which energy and politics are intertwined in Russia. Take the Serbian deal, which was signed ten days or so before today's second round of presidential elections in the country pitting pro-European incumbent Boris Tadic against the nationalist Tomislav Nikolic. That Tadic was in Moscow to sign the pact with Gazprom suggests that it was all designed to improve his chances of re-election. Crude tactics indeed.

In general, the deals help to polish Medvedev’s image as he campaigns to inherit Putin’s mantle next month. Having kept a low profile over the past years, Medvedev is now taking some of the limelight and portraying himself as a strong and credible leader. How much freedom he will have when he ascends to the throne and to what extent Putin and the siloviki will control him is a subject for another blog.

Horelma: Here is a quick addition to Steve’s blogs on the mysterious Kazakh buyer of the $100 million London property. My interest isn't who the real owner is – let’s face it, $100 million isn’t that much for your average Kazakh billionaire – but why anyone would pay so much for such a bizarre place on a busy street in north London. I drive down Bishops' Avenue perhaps once a month, and it never fails to astound me how over-the-top the houses on it are. Having lived for several years in Dubai, I've seen my fair share of post-modern eye-sores. But Bishops Avenue has to take the biscuit.

Photo: Pingnews
Rights: Creative Commons

Bill Clinton on the Caspian

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