The Children of the Autocrats

Last summer, Timur Kulibayev, Kazakhstan President Nazarbayev's son-in-law, was fired from his position atop Samruk, the fund that invests the country's oil earnings. Then, he vanished from the public eye. That didn't seem all that important -- after all, Kulibayev was always an exceedingly low-profile official despite directing Kazakhstan's oil industry, and also the Nazarbayev family wealth. Even when rumors started that Kulibayev was in serious trouble with his father-in-law, one recalled previous occasions when Nazarbayev removed family members from positions of importance, only to restore them a year or two later.

Yet, I raise Kulibayev because a story from the British tabloid News of the World has been circulating the Internet about a London-based Kazakh socialite who has recently given birth to his son. Despite the story's yellow-press providence, I'm told reliably that it's essentially true -- the woman, a former Oxford University student named Gaukhar Berkalieva (pictured with Kulibayev), did give birth in December to a boy named Adam, and Kulibayev is indeed the father. (The story rated tabloid real estate because Berkalieva, who goes publicly by the name Goga Ashkenazi, had a couple of dates with Prince Andrew; in addition, the paper somehow obtained topless shots of her.)

As we learned in trials and news conferences last month, Nazarbayev has exiled his other son-in-law, Rakhat Aliyev, over alleged crimes that make the Alexander Litvinenko affair look mild. Aliyev is accused of smuggling all manner of weapons, radioactive materials and poisons into Kazakhstan, with the goal of overthrowing his father-in-law and seizing power. Aliyev lives in Austria, where he depicts himself as a democratic oppositionist.

So is Kulibayev in a fix over humiliating Nazarbayev's second daughter? Perhaps not, since Kulibayev was included on the official guest list to pass the Olympic torch in Almaty a couple of days ago. And Nazarbayev himself has done a similar thing, fathering a daughter with Gulnara Rakisheva, a former stewardess from the presidential jet. Whatever the answer, it will be important for those wishing to do oil business in Kazakhstan.

Azerbaijan's Heydar Aliyev managed to shepherd his gambling-and-drinking son Ilham into respectability and eventual succession into the presidency. And Uzbekistan's Islam Karimov is said to be trying with his daughter, Gulnara.

But what of Nazarbayev's successor? If he does consider his position dynastic, who is left?

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

Come Clean, Horelma

Mikhail Gorbachev is the latest to be drawn into the absurd story of the $97 million sale of London's Toprak Mansion. Last week, the former Soviet leader was feted at the 23,000-square-foot house by the real estate agent who sold it to a person he calls Hourieh Peramaa, supposedly a Kazakh refugee who fled the Central Asian country at the age of 17 in 1950 or 1951. Her husband is identified as Horelma Peramaa.

Here's how Kevin Sullivan at The Washington Post describes the party and a Persian beauty who is identified as Hourieh's daughter-in-law: Yassmin, 33, an elegant and towering woman in a remarkable red "hello, boys" dress, worked the room but politely declined to comment when approached by a reporter.

All right, folks, does anyone know a Kazakh named Hourieh? Why does this woman never speak? How did she cross one of the most secure borders in the world during Stalinism?

And who really owns that mansion?

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.

Horelma! Horelma Peramam! Stand Up and Be Counted

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

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

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

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

Guesses are welcomed.

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

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

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

Photo: pittaya
Rights: Creative Commons

Planespotting Putin, Musharraf and Nazarbayev

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

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

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

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

Kashagan: Papa Calls Together the Families

It appears that Kazakhstan's Nursultan Nazarbayev is prepared to pronounce judgment on the long-running dispute with the foreign companies developing the supergiant Kashagan oilfield.

Gabriel Kahn, my former colleague at The Wall Street Journal, reports that Nazarbayev has summoned the companies for a meeting with him and Prime Minister Karim Massimov in the capital of Astana next month.

For Kazakhologists, that can mean only one thing -- he will announce to the companies how the settlement will look. Thus, the six-month-old dispute over this 13-billion-barrel field -- the largest discovery in three decades -- appears near a conclusion.

As Kahn quotes Eni chairman Paolo Scaroni, "For me it is difficult to imagine that President Nazarbayev and Prime Minister [Karim] Massimov meet the most important oil companies without a resolution."

Scaroni is right. This is Nazarbayev's style. He's been known, for instance, to scratch out a number on a piece of paper, and hand it to his foreign interlocutor. That's regarded as written on a tablet.

The meeting is scheduled Jan. 11th.

The dispute started because of the Eni-led consortium's over-budget spending and five-year tardiness in field development. As a settlement, Kazakhstan wants to double its current 8.3% holding in the field, plus a cash settlement, and to receive its oil profits on a bigger scale and faster than written into the current contract.

Nazarbayev's intervention is probably welcome news. He's no Hugo Chavez -- look for a decision that all parties can live with. Even malcontent Exxon may grudgingly accept.

Dumbest story on Kashagan: The leaks have been few from the inner chambers in which the Kashagan talks have taken place. Yet in my view the news coverage has been fairly impressive. Even if it hadn't been, I'm not a press-basher, and as a matter of habit almost never go after other writers.

However, a piece by Motley Fool I think begs scorn. This article, posted yesterday, attributes the stand-off to yet another example of "government heavy-handedness," and chalks it up as more proof that "those who follow energy carefully should be concerned about an expanding outbreak of government strong-arming in a number of important producing nations."

In other words, Motley Fool has precious little knowledge of this dispute, and rather than studying up on it so as to accurately inform its investor readers, has conflated Kazakhstan's position with those of other petro-states in the world. As if to underline this point, Motley Fool boasts that the analyst -- David Lee Smith (I am conveniently providing his email address) -- "really has never set foot in Kazakhstan."

For the record, the dispute has nothing to do with Russian- or Venezuela-style petro-nationalism, and a lot to do with incompetence on the part of the oil companies, and an inflexible contract written during the days of $15 oil.

Photo: DJ Solitaire
Rights: Creative Commons

Presidential Humor From Central Asia

Thanks to David Hoffman for this entertaining link. For identification purposes: From left to right, Uzbekistan's Islam Karimov, Kazakhstan's Nursultan Nazarbayev, Turkmenistan's Kurbanguly Berdymukhamedov and Tajikistan's Imamali Rakhmanov.

Photo: chrisdecurtis
Rights: Creative Commons

Prosecuting Foreign Bribery Under the Bush Administration

When they unveiled the indictment in April 2003, U.S. prosecutors portrayed their case against James Giffen as open and shut -- the largest foreign bribery case in U.S. history. And by the looks of the detail, they had reason for confidence. There they were -- six individual examples of U.S. oil company payments totalling some $80 million being coursed through European bank accounts linked to the president of Kazakhstan or his associates.

As regular readers of this blog recall, Giffen once controlled the biggest oil deals in the world as oil adviser to Kazakhstan President Nursultan Nazarbayev. He's the principal character in The Oil and the Glory.

Yet in a New York court hearing today, the case seemed a lot more complex. Judge William Pauley, who two years ago issued fiery warnings to both sides to accelerate the pace, was reduced to a mild rebuke of the prosecution, and scheduling the next hearing for April 18th. And jury selection? Not a hint.

There's also a strange moseyness about the prosecution. At one point, Pauley directed the government team to proceed with depositions of European witnesses who in previous hearings they mentioned requiring; the prosecutors themselves seemed to lack the initiative to grab these folks before they die or forget all they know.

That's not the main holdup. It's the defense, brilliantly led by former U.S. prosecutor William Schwartz, who wants documents from a handful of U.S. intelligence agencies to prove Giffen's contention that the whole time he was negotiating those oil deals for a fee, he was doubling as an effective agent for the American government.

This being probably the most secretive administration in U.S. history, dislodging such documentation takes time. Perhaps a friend of mine is right -- we may not see a trial until this administration is out of office.

Photo: debaird

Rights: Creative Commons

Is America's Dethroned King of Kazakhstan on his Way Back?

After four years of ignominious exile from his powerful perch in Kazakhstan, New York lawyer James Giffen may have an opening for a revival.

Those who have read The Oil and the Glory are familiar with the outsized Giffen, its garrulous principal character. Born to relatively humble roots in Stockton, Ca., the 66-year-old Giffen had a spectacular rise after marrying into American society, eventually becoming the go-to man for American blue chip companies wishing to trade in the Soviet Union. After the Soviet collapse, Giffen gained a similar gatekeeper role in Kazakhstan, where at one point he controlled the world's biggest oil deals.

All that crashed in 2003 with Giffen's indictment in the largest foreign bribery case in U.S. history, what's known in Central Asia as Kazakhgate. On Friday, there's a hearing in New York in the case, in which Giffen is accused of channeling some $80 million in payments from U.S. oil companies to Kazakhs including President Nursultan Nazarbayev and former Prime Minister Nurlan Balgimbayev. Meanwhile Giffen is stuck in New York, his passport confiscated, and by appearances no longer in contact with his old pal Nazarbayev.

It's Balgimbayev who's the key to my suspicion that Giffen may regain, or have already regained, some influence in Kazakhstan. Yesterday, Farkhad Sharip at the Jamestown Monitor reported that Nazarbayev had appointed Balgimbayev as an adviser. And that is Giffen's opening.

The 60-year-old Balgimbayev lost his power at about the same time as his mentor, Giffen. The two were rightly seen as a pair, with Giffen providing intellectual heft to Balgimbayev -- who headed Kazakhstan's oil industry when he wasn't prime minister -- and Balgimbayev supplying Giffen a place to channel his genius. Balgimbayev gave Giffen a hilltop house overlooking Almaty right next door to his, the properties connected by a gate. After the U.S. bribery scandal, Balgimbayev also vanished; some said he had moved to Dubai for awhile.

But now that he's back, I'd say Giffen may not be far behind.

As long as we're on the topic, I had already sensed Giffen's presence over the last couple of months in Kazakh affairs, specifically in the country's dispute with the Italian-led consortium developing the Kashagan oilfield.

The original Kazakh demands, and the style in which they've pursued them, remind me of previous, Giffen-led battles with the companies. One of Giffen's signatures is the use of meticulously prepared reports, done usually by western contractors in London and elsewhere, containing every conceivable profit formula, cross referenced for every conceivable production volume, and so on, all of them beautifully packaged in color and with the rest of the graphic design bells and whistles. Another is the juxtapositioning of these reports with extremely well-reasoned, breathtakingly ambitious, hardball demands.

Sound familiar?

We know that the Kazakhs have allowed Giffen's company, Mercator, to continue operating in Kazakhstan because they don't want him to become tempted to spill some of his many secrets about the First Family. So it's not a stretch to imagine the former King of Kazakhstan providing expert strategic advice from his distant exile, either directly or through his representatives.

Whatever the case, the Kazakhs have clearly been holding their own.

Photo: Andy Freeburg

How to Tarnish A Hard-Won Reputation

It's not a household name in the United States, but in the former Soviet Union the Organization for Security and Cooperation in Europe is a source both of irritation and solace. The distinction depends on whether you are one of the region's autocrats or one of its independent thinkers.

Whichever the case, the OSCE -- financed in large part by the U.S. -- has played a hard-fought, 16-year role as Europe's official conscience.

Until now. The OSCE has bafflingly jeopardized its reputation as Europe's premier human rights watchdog in order to satisfy an understandable if misguided campaign by Kazakhstan for the prized chair of the organization.

Last Friday, the OSCE for publicly unknown reasons succumbed to Kazakhstan's full-court press on the issue, and announced that the Central Asian republic will take over the one-year chair a little over two years from now, in 2010.

Kazakhstan is hardly the region's worst human-rights violator. But neither is its record worthy of holding up as an example, which is what the chair represents. This is a country that has never held a fair election; although President Nursultan Nazarbayev has led the country since 1989, there's no way to know for sure that he actually ever won a contested election.

Nazarbayev has never permitted a genuine opponent to run against him, and like his neighbor to the north, Vladimir Putin, he has routinely beefed up the election results to show swelled support. He recently signed a law allowing him to serve as president for life. And there's no evidence that, short of his own death, Nazarbayev will ever agree to give up the post; to the contrary, the probability is that he'll stay on the job for years to come.

If the OSCE states wished an example from the former Soviet Union, why not choose Ukraine? For all its flaws, it has been holding truly competitive presidential elections for some 13 years. Or better yet, how about Georgia? There, Mikheil Saakashvili has actually stepped down from the presidency in order to run in a snap election next month.

Kazakhstan ran its OSCE campaign through its own offices and the paid help of lobbying groups like APCO in Washington. It's not clear to me what precisely turned the tide, but the OSCE decision is appalling, in my opinion. It will be hard-pressed to recover its reputation.

Stories I'm following today

Steven Mufson of The Washington Post reports on Saudi Arabia’s continued towering role in the world oil industry.

Bruce Pannier of RFE-RL reports on the release of more leaked recordings of top insiders in Kazakhstan, including President Nazarbayev. They appear to be part of a campaign by his exiled former son-in-law, Rakhat Aliyev, to show he remains a force to contend with.

Stefan Nicola of UPI reports on the latest developments in Russia’s economic thrust into the European energy market, and Europe’s apprehensive reaction to it.

Newsbits for the Weekend

James Giffen foreign bribery case - There will be no immediate selection of a trial date for former Kazakhstan oil gatekeeper Giffen. Today's federal court hearing in New York was postponed for six weeks -- until Dec. 13th. This is the second straight postponement in the already three-and-a-half-year-long case. Giffen is accused of passing along some $80 million in payments to Kazakhstan President Nursultan Nazarbayev from American oil companies. With the way things are going, some are starting to think that this will be another touchy item passed along from the George Bush administration to his successor. Could a trial really wait until 2009? It's hard to believe, but considering Giffen's defense -- that he was an effective asset for the CIA during his entire time in Kazakhstan -- it could indeed take many, many months to disgorge top-secret documents from the government. And, as for the prosecutors, it's not clear that they are as eager as they earlier seemed to go fast.

The Vladimir Putin show - Can the Russian president go anywhere abroad without getting into a schoolyard scrap? In Lisbon today, Putin lashed out at European concerns regarding Russia's rising dominance in Europe's energy market. Russia has established a post-Soviet record of using its enormous petro-power as a blunt instrument for political and economic gain. But Putin said that it "makes me laugh" when he hears Europeans worry about Russians buying up European energy properties. Putin will have to do something more than be combative in order to calm European nerves.

Godfather-in-Law - Rakhat Aliyev, who until recently was the powerful son-in-law of Kazakhstan President Nursultan Nazarbayev, is writing what appears to be a tell-all memoir of life inside the first family. Its working title, he says, is Godfather in Law. Aliyev's saga is a window into the sordid post-Soviet ruling class that's emerged in Central Asia and the Caucasus, many of whose states resemble sultanates rather than elective republics. The difference is that in Kazakhstan -- primarily because of the documentation that's been disclosed in the James Giffen case -- the mess is being played out in public. Aliyev was tossed out of the Kazakh ruling family earlier this year after a series of rows with the country's business elite, and the disappearance of two executives from his Almaty bank. Among the allegations he will make in his book is that Nazarbayev himself ordered the murder of Altynbek Sarsenbayev, a former Kazakh ambassador to Russia who joined the political opposition, then was murdered in February 2006. Critics have accused Aliyev himself of the murder. Aliyev has lived in exile in Austria since Nazarbayev ordered him arrested. RFE-RL has a good interview with Aliyev.

The Wheels of Justice in New York

On Friday, a three-and-a-half-year-old question will hang again before Federal Judge William Pauley in New York: When will James Giffen's foreign bribery trial commence? (Photo by Andy Freeburg)

The California-born Giffen, former chief oil adviser to Kazakhstan President Nursultan Nazarbayev, has managed to stall his trial -- the largest foreign bribery case since the U.S. law was passed in 1977 -- since his arrest at JFK Airport in March 2004.

The trial is bound to be intriguing, not only because of the sums involved, but also because the theatrical Giffen himself -- with a three-and-a-half-decade-long insider's career in the Soviet Union and former Soviet Union -- is one of the most colorful foreign characters of the Caspian oil boom era. The case has come to characterize many of the excesses of the epoch.

In addition, Nazarbayev is an unindicated co-conspirator -- again, a symbol of the alleged official corruption of the post-Soviet period -- and the case has already damaged U.S. relations with Kazakhstan, an important U.S. ally on the Caspian Sea.

Federal prosecutors claim that the 66-year-old Giffen passed on some $80 million in payments from U.S. oil companies to Nazarbayev and some other prominent Kazakhs from oil deals that the American negotiated during the 1990s.

Giffen so far has not disputed that claim, but has asserted that when he served as Nazarbayev's adviser, he was simultaneously consulting with and assisting U.S. intelligence agencies including the CIA on Kazakhstan matters.

The judicial delay has resulted from wrangling between Giffen's lawyers -- insisting on CIA documentation that they claim will prove his asserted defense -- and ultra-resistant prosecutors from perhaps the most secretive presidential administration in U.S. history.

Giffen's apparent hope is that eventually the prosecutors will drop some of the more serious charges rather than release documents they are seeking.

There have been signs of meddling from the Justice Department in terms of attempting to classify sensitive testimony already long released in open court. Otherwise, like Giffen himself, the prosecutors have not publicly indicated that they are prepared to compromise.

In the past, Judge Pauley has pressed the two sides to accelerate their work so jury selection can begin. But he canceled the most recent scheduled pre-trial hearing, since apparently there was no indication that the sides were nearer to being ready to try the case.

Will Judge Pauley finally going to put his foot down and set a date? The trial certainly will not begin this year. But if Pauley does act, it could easily start in the first half of 2008.

The Cheshire Grin in Kazakhstan

Talks under way between Kazakhstan and Big Oil are about much more than the nation's unhappiness with the work on the world's largest oilfield discovery of the last three decades.

It's about the future of oil. And what is it?

Despite their unprecedented profits, the Big Oil companies are on the decline, and in our lifetime -- except for those that manage to reinvent themselves -- will largely go the way of former industrial behemoths like United States Rubber, Goodyear and Bethlehem Steel.

Petro-states like Kazakhstan and Russia, meanwhile, are demanding and obtaining more control over their own fields, and increasingly marginalizing the once-omnipotent oil majors. In just two decades or a bit longer, they will be the world's big, self-contained providers of energy, and companies like BP, Shell and Exxon Mobil will either be transformed into something else, or be far smaller and mousier. They will be employees -- contractors -- for Kazakhstan, Azerbaijan, Russia, Nigeria and so on.

Already, the petro-states control between 80 percent and 90 percent of the world's oil reserves; the clock is ticking for the companies, based on reserves booked long ago, something that Wall Street will recognize at some point too.

The talks in Kazakhstan make it plain that at least Exxon -- long the most far-sighted of the companies -- understands this shift. The discussions are on the supergiant Kashagan oilfield, which is at least five years behind schedule for first oil and well over two-times over budget.

As partial compensation to irate Kazakhstan, the companies (Exxon, Shell, France's Total, Italy's ENI, ConocoPhillips and others) yesterday agreed to grant the state a larger share of the field. It's clear that Kazakhstan wants an equal share with the bigger companies, and since no dollar figures were mentioned there is still the question of whether it's willing to pay market price -- or anything at all -- for that increased stake.

In this gentlemanly form of back-alley extortion, Exxon had the gumption to insist of the man wielding the knife the equivalent of train fare home so as to live another day. Kazakhstan could have this increase, Exxon said -- but only if the contract were extended beyond its current expiry in 2041.

Kazakhstan so far has refused (it's not clear, for instance, if Exxon -- as brazen as any petro-state -- offered any money extension), but the demand is brilliant.

If such an extension is granted for, say, a decade or longer, Exxon and its partners would be on the road to extending their lives just that little bit.

There has seemed to be a Cheshire grin on some of the Kazakh and Russian oil officials in recent months.

A Few Hundred Millions Dollars Between Friends

Just two weeks ago, Chevron Chairman Dave O'Reilly scurried aboard the corporate jet to Kazakhstan after a legislator urged a shutdown of the company's supergiant Tengiz oilfield for environmental violations.

But O'Reilly emerged cheerily from a meeting with President Nazarbayev -- the Kazakh leader had called Tengiz "an excellent example of how the government and a foreign investor can work together successfully," O'Reilly crowed.

In other works, he seemed to imply, Chevron wasn't in the same boat as the Eni-led Kashagan development, a sister oilfield whose work the Kazakhs have suspended.

Maybe, depending how one defines working successfully. Yesterday, the Kazakhs quantified their own view, and the number is $609 million. That's the fine the Kazakhs have levied against Chevron for three years of alleged sulfur violations at Tengiz.

Dow Jones reports that Chevron is challenging the fine. And it is true that, five years ago, Chevron successfully resisted a similar ecological penalty by the Kazakhs, who sought $71 million but finally accepted $7 million.

Yet, nothwithstanding the warm and fuzzy shoulder massaging that went on between O'Reilly and Nazarbayev last month, look for the current dispute not to end as peaceably.

For one thing, it's a wholly different atmosphere, both in the global oil industry in general, and in Kazakhstan specifically.

Big Oil has been knocked on its heels by a sea change in who gets access to the newest oil fields around the world -- by far, it's nationally owned oil companies and state ministries, not publicly held oil majors like Exxon Mobil, BP and Chevron.

In addition, Russia is leading the way locally in tearing up 1990s-era oil contracts in order to take control of its most promising oilfields. While Kazakhstan is acting under different circumstances, the impact could be similar -- Kashagan (the largest discovery on the planet in more than three decades) is under threat of a Kazakh state assumption of joint operatorship.

In the 2002-2003 row, Chevron played brinksmanship with Kazakhstan, even temporarily shutting down the Tengiz operations to demonstrate its resolve. It will hardly try such antics today, given the possibility -- even if remote -- that Kazakhstan could simply push the envelope all the way and find ready companies or contractors, in China or India, say, prepared enthusiastically to take over Tengiz.

The Ripples of an Incompetently Managed Field

The Kazakhs are tightening the screws on the foreign developers of Kashagan, the biggest oilfield discovery of the last three decades. Today they passed a law allowing them to sever any oil contract unilaterally. Reuters story

It's all meant to put most of the leverage on the Kazakh side in their dispute with the managers of the field. But the perhaps unintended consequence has been the impression that the Kazakhs can also apply leverage to change or repudiate any other contract they so wish in the future.

Is it also more evidence of the Caspian states going the Russian way in terms of petro-state assertiveness?

Here is an email I received today from a foreign friend in Almaty who prefers to remain anonymous: "This is a particularly sticky time here. As of the unanimous passing of the new sub surface law. Many are saying that new investment here should go stone cold. Those who have gone to the expense and trouble to set up a rep office here and try to secure licenses may pack up and go elsewhere as hopeful as they have been. This law is expected to be used as leverage in the future when they want something in any negotiation. They can always find or create an infraction giving them grounds to annul a deal whether well founded or fictional. This is generally expected. The question is will they ever actually use the law to close down an investor(s) and resell the asset?"

I've heard such grumbling before over the years in the face of perceived government high-handedness, but I know of no one substantial who ever actually pulled out. Foreign oilmen in the end are focused on the bottom line, and the stakes in terms of profit are too high for impetuousness.

That does not mean that President Nazarbayev is going to be able to allow this new law to stand in the abstract. In terms of satisfying the due diligence requirements of publicly owned foreign companies, he is going to have to explain what a multi-billion-dollar contract means when one side can just tear it up at will.

Yet this dust-up is still not of the same character as the across-the-board contract repudiation going on in Russia. I do think that down the road Kazakhstan will demand better terms from the country's two other major projects -- Tengiz and Karachaganak. But I doubt that the country will insist on majority ownership of the fields, as Russia has.

Another difference from Russia is that it's probable that none of this would have happened if Italy's ENI had not been such a poor field operator. While undeniably the world's most successful charmer of Russian and Kazakh oilmen, which has resulted in the company's friendship with otherwise obstreperous Gazprom, for instance, ENI is over its head and over-stretched when it has come to actually managing these difficult projects.

The Kashagan consortium members are meeting with the Kazakhs next Tuesday in Astana. One way to change the tenor of the discussions would be to take the initiative and announce a management change. Either Exxon Mobil, France's Total or Shell should take over operatorship, with a primary role offered to the state oil firm, KazMunaiGas.

That appears to be what the Kazakhs are looking for, in addition to an enormous compensation payment to make up for the minimum five-year delay in first oil and a bloated project budget. The oilmen should write a first money offer on a piece of paper and offer it up.

A Window Into a First Family's Oil Holdings

Aliyev
Guy Chazan at The Wall Street Journal breaks an excellent story today on the Kazakhstan first family's ownerships in the oil business. For years, the biggest guessing game on the Caspian Sea has been which fields and companies are controlled by the various first families, as sharing with those on high is usually the only way to do an oil deal in the region.

An important factor to understanding how the Caspian really works is to know the first families' business relationships, particularly in the oil industry.

In the story, Chazan helps to explain the subject by opening a window into a field of extremely heavy crude called MangistauMunaiGaz, or MMG.

Here are the first two paragraphs: A family dustup in energy-rich Kazakhstan has turned one of the country's largest oil companies into a potential takeover target, attracting interest from some of the biggest players in the global oil industry. MangistauMunaiGaz, or MMG, has been in play since a dispute earlier this year between Rakhat Aliyev and his former father-in-law, Nursultan Nazarbayev, the country's autocratic president, according to people familiar with the situation. Read story

Steve's comment: In Almaty, the most important fact for those wishing to conduct oil business is that nothing substantial can be done without a nod from Timur Kulibayev, the husband of Nazarbayev's second daughter-in-law, Dinara. Kulibayev owns shares in oil fields, and those he does not own he holds sway over through his influence in the state oil company, KazMunaiGas.

As for MMG specifically, the assumption of oilmen in Almaty and investment bankers in the West has always been that it was controlled by the first family. They controlled either 60% or a full 90% of the field. Though the field produces a low-grade crude, those political links gave the field a certain gravitas.

But was that majority stake controlled by Aliyev, the rough-hewn husband of first daughter Dariga Nazarbayeva, or was it surrogates of the president himself? Perhaps a combination of the two? That was not known publicly, and the western bankers and accountants inside the deal were not talking.

That MMG has gone on the sales block is the best confirmation yet, however, that Aliyev is at least a partner. He has been in trouble for a long time, but a few months ago it reached a head with accusations that he ordered the kidnapping of two executives of Nurbank, which he controlled. Nazarbayev ordered him arrested, and Dariga divorced him.

Ever since then, the oil community has waited for word that MMG was on sale. Now it is.

That fact may be mere burlesque, since it does not shed light on other privately held oilfields in Kazakhstan.

Still, since the self-exiled Aliyev has turned into a political opponent of Nazarbayev, one wonders how the proceeds of the sale will be paid. The president no doubt would not want to put billions of dollars to the use of a much-motivated opponent.

The Kazakhs Want Control

An article today in The Wall Street Journal advances the ball toward discovering Kazakhstan's wish list if it's to lift the suspension of work at the supergiant Kashagan oilfield. Its apparent aim: to take over.

It’s been evident for some time that Kazakhstan had high demands in mind of the Italian-led developers of Kashagan, particularly after the government halted development of the field last week. But it turns out that far larger and earlier payment of oil profit isn’t the only issue on Kazakhstan's list.

Greg White, my former colleague at the Journal, rang up the Kazakhs’ deputy finance minister, Daulet Ergozhin, who said that the country has its complaints about how Eni, the Italian oil major, is operating the field.

Here is the key paragraph from the piece: Kazakhstan isn't insisting that state oil company KazMunaiGaz become the operator of Kashagan, he noted, but said the government would "look positively" on a proposal to put a Kazakh company in control or jointly operate the project. Read story

Steve's comment: The Kazakhs are interested in operatorship out of pride and prestige, not to mention lucrative contracts for the actual work.

There is a noticeable pattern in how such assertiveness takes place. In Russia, Moscow acted after Shell got far over budget on its Sakhalin II project, and a bit presumptuous that the Russians would simply swallow it. The Russians used that wedge to force concessions from Total and BP.

Similarly, the Kazakhs moved after warning signs about Eni's competence -- a series of huge cost overruns, plus at least a seven-year postponement in first oil. Because of this, the demands of the Kashagan consortium do not say anything negative in my view about the Kazakhs -- the foreigners probably deserved it a long time ago. But they do suggest that similar action will take place in the much better-run supergiant Tengiz and Karachaganak fields.

There will be high tension during the designated 60-day talking period over Kashagan, because the foreigners won't voluntarily agree to cede control of development when they are putting in all the money. If they are forced to, one can imagine one or more of the companies heading for the exits.

One wonders separately about the future of President Nazarbayev's second son-in-law, Timur Kulibayev, whom he has dismissed from his executive position with the state investment fund.

Kulibayev, a billionaire who as Nazarbayev's representative in the oil industry dominates the sphere in Kazakhstan, will definitely be re-appointed to an important government post; Nazarbayev needs him.

One wonders whether that new position will be linked with the crucial operatorship of Kashagan.

What If Rakhat Testifies?

Nazarbayev; Dariga and Rakhat in more powerful days

The word is that Rakhat Aliyev, Kazakh President Nazarbayev's former son-in-law, has met with U.S. Justice Department lawyers in Vienna. The subject: his possible testimony in the upcoming foreign bribery trial of James Giffen. While Aliyev was definitely in a position to know the degree to which Giffen did or did not serve as a cash conduit for Nazarbayev while he served as his main oil adviser, it is unclear he has the credibility to withstand cross examination.

It has been two months since Aliyev's fall from grace. In that time, he has seemingly lost everything -- his perch in Kazakhstan, his royal link, and even his reti