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.

Labyrinth Out in Paperback

The updated version of Putin's Labyrinth is out today. It brings events in Russia up to date, including the collapse of the economic miracle with the plunge in oil prices and the global financial crisis, and the January natural gas stand-off with Ukraine. This version is also indexed. Your comments are welcomed.

Yes, But Will An Obama Visit Put the U.S. Back in the Great Game?

President Obama has told a senior Kazakhstan official that he intends to visit the Central Asian nation, a senior American official has told me. The visit comes as Russia has rolled back U.S. power in the region after a decade in which Washington established military bases there and encouraged the construction of non-Russian energy pipelines to the West.

Yesterday, Reuters reported on a Kazakhstan statement about an invitation issued to Obama by Kazakhstan Senate Chairman Kasymzhumart Tokayev, who is second in the line of power to President Nursultan Nazarbayev.

In an email exchange, a senior Obama administration official confirmed the report. He told me that Tokayev issued the invitation while meeting with the U.S. president in Istanbul this week. Tokayev happened to be in town for a conference called the Alliance of Civilizations, and Obama met him along with a dozen heads of delegation.

On meeting Obama, Tokayev invited him to Kazakhstan. "Obama responded that he knows well the importance of Kazakhstan and intends to visit, but does not yet have a fixed date scheduled to do so," the administration official said. One opportunity would be July, when Obama plans to visit Moscow.

No U.S. president has ever visited any Central Asian country, though the U.S. had a military base in Uzbekistan until it was ejected in 2006, and another in Kyrgyzstan, which is scheduled for closure in July. The closure of the Manas Air Base in Kyrgyzstan came in February after Russia promised the country more than $2 billion in loans.

For an excellent synthesis of the retrenchment of U.S. power, and its replacement by Russia, read this piece by the FT's Charles Clover and two colleagues.

Clowns to the Left of Me, Jokers to the Right

Why has Russia's natural gas dispute with Ukraine stretched out so long?

A key reason is the subtext from Russia's side: an effort once and for all to tar and discredit much-detested neighbors who have become darlings of the West, and end the West's intrusion into Moscow's claimed sphere of influence.

Despite some self-inflicted damage, the gambit so far has been relatively successful.

In the fall, Russian Prime Minister Vladimir Putin and his junior partner, President Dmitry Medvedev, managed through skillful public relations to turn their full-scale invasion of Georgia into a reflection on the sanity of Georgian President Mikhail Saakashvili. It was one of those kernel-of-truth cases -- Saakashvili in fact is a rash, immature leader (and may indeed have initiated the original fighting in South Ossetia that preceded Russia's invasion of Georgia proper).
Saakashvili's personality flaws hardly justified Russia's seizure of the Georgian port of Poti and the bombing of the Baku-Ceyhan pipeline route, and Putin and Medvedev suffered black eyes. Yet Saakashvili's image in the West and at home was severely -- and perhaps permanently -- damaged. (And, not incidentally, the U.S. was revealed to be largely impotent in what it had hubristically claimed as a pro-Western new region.)

Now, Putin and Medvedev have in their sights another primary local irritant -- Ukraine and its independent-minded president, Viktor Yushchenko. In the latest part of this effort, the Russian leaders are trying to recruit Europe into a strategy of reducing their new dispute with Ukraine to this: Ukraine is a country-size thief.

On its face, what we have is a simple pricing dispute. Ukraine wants to pay close to today's price for its 2009 natural gas supplies, or about $180-$235 per 1,000 cubic meters of gas. But Russia wants Ukraine to agree to what its other European customers are paying based on long-ago negotiated contracts, or about $400 per 1,000 cubic meters.

We've previously discussed the role of personal gain in confounding a settlement to what elsewhere is usually a utility dispute. The two sides seem no nearer to resolving the central pricing disagreement, but increasingly cold Europe has stepped in to at least restore the flow of gas.

Here's where the charges of thievery enter. Russia says it won't restart the general flow of gas because Ukraine is siphoning off volumes for itself; Ukraine denies the accusation, and says it's simply isolating a bit of the gas -- so-called technical gas -- in order to get pressure into the line. Today, Putin and Medvedev met with Europeans in Moscow in an ostensible attempt to break the logjam, but failed.

Here's what Russia proposes: a consortium of European countries will "buy" the technical gas, and thereby "share the risk" with Russia. Italy, Russia's usual partner in its energy-based geopolitical strategies, is the sole foreign recruit thus far.

What would be the outcome of such a consortium if it does fully materialize? It would give de facto international validation to Russia's claim that Ukraine is so untrustworthy that a European consortium is required to mitigate the risk of doing business with it.

It would come again with some damage -- the dispute will go on until the two sides agree on a price, and meanwhile Putin, Medvedev Gazprom and Russia itself would look unreliable.

Yet, strategically Russia would also bring disrepute on a neighbor that until now has enjoyed an irritatingly good image outside the region.

If any of Europe's most important nations were still seriously considering either Ukraine or Georgia as potential members of NATO, these last few months will have made them less open to the idea.

The Return of High Oil

In June, a couple of Dutch energy researchers released a fascinating, long-gestating report on high oil prices. At the time, oil was selling for about $130 a barrel, and the authors, neatly dissecting the market, argued that prices were only going to get worse. Just the next month, they did rise -- to $147 a barrel.

But, as O and G readers know, there was good reason to argue the other way at least in the short term – Ed Morse, now shifted from defunct Lehman over to LCM Commodities, asserted correctly that we were in for a considerable price correction.

So, with prices having gone strongly down, as Morse forecast, I made a phone call to the report’s lead author – Jan-Hein Jesse, whom I met last year at an OPEC meeting in Vienna – and asked whether he thinks his thesis still holds. I.E., is another price spike coming down the road?

The answer, Jesse replied, is probably yes. The ‘probably’ covers the event that we are headed into a long, deep depression, in which case all such previously composed economic analyses are off the table, and one must reassess the facts afresh.

But if in the next two or three years we come out of recession in fair economic shape, look for another steep rise in oil and gasoline prices.

Fatih Birol, chief economist at the International Energy Agency, has been arguing the same point while making the rounds last week and this week in Washington and elsewhere. He’s been explaining the IEA’s latest World Energy Outlook, which is just as bleak as Jesse’s paper. Jesse wrote the paper with Coby van der Linde.

In short, demand in China, India and elsewhere in the developing world is probably going to roar back and outstrip supply in 2011 or beyond.

That alone will push prices back up. I have a story in the new Business Week on how oil companies also are now responding to $50 oil by shelving oilfield development projects. So, as Jesse told me, “In 2010 or 2011, we will be in the same situation as [the high prices of] last year. Then we will start all over again [in an energy crisis], but it will be much more difficult.”

One interesting observation of Jesse’s is that price no longer works as a stimulant in the other direction – high prices don’t necessarily motivate oil producers to flood the market with supply, and thus tamp down the upward motion of prices. That’s because almost all the available new oilfields are controlled by national oil companies like Saudi Aramco, Russia’s Gazprom and Venezuela’s PDVSA. Unlike oil companies such as Exxon and BP, which if they can are driven to maximize profit by producing more oil when prices are high, these national companies earn what they need from the higher prices, and let the rest of the oil sit in the ground.

In order to meet rising demand starting in 2011 and beyond, Jesse wrote, these producers – the companies and countries – will have to bring twice as much newly found oil onto the market in the next 22 years than what they did in the last 22 years. Meaning they will have to find and deliver 70 million barrels a day of new supply to the market. Almost no one thinks that is possible.

Jesse’s ultimate forecast is that the West – the U.S. and Europe – are going to have to use a lot less oil in order to make way for rising demand in China, India and elsewhere. If they don’t, he says, look for geopolitical tension, and another possible deep and prolonged recession. The coming energy shortages are bound to produce “sometimes confrontational relationships” between the world’s main oil consumers and the petro-states, the authors write.

Jesse and the IEA come to the same conclusion – the current global energy model isn’t sustainable. In order to avoid “the nasty side of oil scarcity,” Jesse and his co-author write, OPEC and other petro-states need to produce more oil, and the West needs to purse efficiency and the development of alternative energy.

While You Were Involved in War

In the midst of Vladimir Putin's land grab in Georgia, BP suffered another blow in its oilfield tussle in Russia. Last week, a Russian court barred Robert Dudley, the CEO of BP's joint venture in Russia, from running the company for two years. Now BP is trying to figure out how to secure its Russian assets, which account for a quarter of the company's global production.

BP and its partners at TNK-BP -- four Russian oligarchs who are mainly financiers and bankers -- have been in a dispute since spring. In a nutshell, the Russians value the company for the dividends it pays out; BP sees the company as more of a growth play, and wants to plow as much of the oil profit as possible back into the company. While that sounds like a balancing act managed at almost all companies around the world, it's turned ugly in this case.

As O and G readers know, I see this brawl ending badly for BP. Given the pressure the Russians have brought to bear, with the obvious collusion of the Kremlin (it's absurd to claim, as the Russian partners have, that an army of inspectors could have a free-for-all at the company unless the Kremlin were okay with it), I don't see how BP comes out with anywhere near its current 50% share of TNK-BP.

Indeed I think it's entirely possible that the British company is forced out entirely. In that case, BP itself -- meaning the global oil company -- is at risk; Wall Street will pummel its share price, and that would make it a vulnerable target for takeover. Some predict that Shell is the likeliest suitor, and I agree.

The partners are scheduled to meet to brawl again face to face on Sept. 25.

The Georgian Conflict on Podcast

I spoke with Chris Power, international editor of BusinessWeek. Listen to this recording, which is also downloadable as a podcast.

Targeting the Pipeline

Until now, the notion that the battle in Georgia had an oil component was an educated conclusion, in my case based on the 11 years I spent living in the region, including in Tbilisi during the 1990s. Now we have two independent reports, including one this morning by my former Wall Street Journal colleague Guy Chazan, confirming that Russia took advantage of its assault to tell the West that the Baku-Ceyhan pipeline isn't necessarily safe.

(Credit where credit is due: Damien McElroy of The Daily Telegraph actually had the story first. But the WSJ had the foresight to publish an actual photograph, so that there is no parsing the facts now.)

The WSJ report says that the attack, coming within 10 feet of the Baku-Ceyhan line, occurred last Saturday. Here is Chazan's description:

"The line of craters left by the alleged Russian attacks runs through the middle of a hilly, mostly uninhabited plain some 15 miles south of Tbilisi, near the town of Rustavi. The area lacks military or even human targets. The only sign of civilization is a small farm surrounded by haystacks and grazing herds of cows and sheep. The 45 craters -- each some 60 feet across -- scar the hillside like footprints left by a giant."

On Tuesday, a jet returned and appeared to bomb a nearby smaller oil pipeline that terminates at Supsa, a port on Georgia's Black Sea coast.

The goal? As Chazan states well: "Russia wasn't only aiming to humiliate its neighbor militarily but also to damage its reputation as an energy corridor."

Georgia has no appreciable oil or natural gas. But the U.S. got behind it under the Clinton administration as a corridor for 1 million barrels a day of oil, plus considerable volumes of natural gas.

The United States originally intended the corridor as a way to weaken Russia's hold on its traditional colonial south. The strategy has been to take away the countries into which it normally expands: Eastern Europe, the Caucasus and Central Asia. That explains the U.S. support for NATO expansion. And it explains the so-called East-West Energy Corridor, of which Georgia is part.

The bombings did not strike the actual lines. But they demonstrated that Russia can, and might, do so.

Photo: Guy Chazan, The Wall Street Journal

Labyrinth with The American Entrepreneur

I spoke with Ron Morris -- "The American Entrepreneur." Here is the recording. (Ignore the Moody Blues at the beginning.)

Listening to Iowa, India and China

The West has made it so difficult for Russia to join the 153-member global trade group called the WTO that, under Vladimir Putin, Moscow adopted the Groucho Marx dictum, "I refuse to belong to any club that will have me." After the performance of the leading trading nations in Geneva this week, one might be tempted to have sympathy for that sentiment. Freer trade is important -- if done right, poorer nations can spread the wealth beyond the corrupt elite. But the emphasis is on the execution.

The prevailing wisdom after this week's unprecedented collapse of talks for a freshened, global trade deal is that the world may have become too complex for such grand deals now. Better to turn to smaller, piecemeal pacts among nations and regions, and curb one's ambitions.

From such smaller agreements, according to this line of thinking, those antagonistic toward freer trade will be more comfortable with it. Or, say some people, such limited accords may be the wave of the future – it may no longer be possible to strike a global trade agreement, not with so many competing interests.

It seems to me that that's at best a limited reading of what happened to the so-called Doha trade agreement. My BusinessWeek colleagues Bruce Einhorn and Mehul Srivastava go a ways in explaining why India and China, for instance, dug in their heels at the last moment:

The field has changed around the world. Just as politics has led the U.S. Congress in June to renew subsidies of its cotton and sugar farmers, China and especially India are responding to domestic unease with more open trade borders.

Look at the trouble getting the Columbia trade deal through the U.S. Congress. Are the Democrats going to be more amenable if they see Canada, for instance, do bilateral deals? It seems absurd on its face. Extend that out to the rest of the world, and you get the picture.

Instead, free-traders need to start over with roll-up-the-sleeve politicking. Quite apart from increasingly hostile domestic opinion, a President Obama or McCain will - far more than previous U.S. leaders -- have to satisfy emerging economic states.

India's trade minister, Kamal Nath, used humor to make just this point. At the last moment, it seemed that U.S. Trade Representative Susan Schwab understood that the West could no longer ram through its agenda, and tried to finesse India. But it was to no avail. "Susan Schwab said that she loved me," Nath said in Geneva. "I said that I loved her too. But probably she didn't love me enough."

One of the most striking aspects of the final hours of the talks was the decidedly undiplomatic language used by China's trade representative, Chen Deming, in complaining that the West simply didn't take the rest of the world seriously. "There were no serious efforts to convince the Third World to accept the developed world's package." Deming said. He said, "Once their interests were guaranteed, the Americans demanded a sky-high price" of developing nations.

After the way he has talked down Nafta, Sen. Barack Obama not surprisingly may not be in an enormous hurry to find a way to resurrect Doha. In statements after the collapse, the campaign issued soft support for Doha, but said that the Bush administration was "right to walk away" from China's and India's last-minute demands. Asked what precisely would be needed to move Doha forward, Dan Tarullo, a Georgetown law professor who advises the Obama campaign, told me that it's too early to know. It is also too early to know whether one should use the building-block approach suggested by the McCain campaign. Talking to the Obama camp, the feeling is of a campaign punting what it probably regards as a back-burner issue.

I also spoke with Colin Bradford, a scholar at the Brookings Institution in Washington. He said that the collapse isn't necessarily a bad thing. All the major economies involved – the U.S., China, India, Japan, Brazil and so on – are listening more closely to their domestic constituencies than they ever have, he says. Agriculture subsidies are a sensitive issue in all the major economies. "Are we ourselves going to say we are not going to listen to our Iowa farmers?" Bradford said.

Photo: Eurritimia

Rights: Creative Commons

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Photo: lawkeven
Rights: Creative Commons

Labyrinth At The Commonwealth Club

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

Prediction: Sub-$100 Oil

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

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

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

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

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

Labyrinth At Google

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

Gasoline Prices: To Trust or Not To Trust

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

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

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

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

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

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

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

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

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

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

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

Photo: MiikaS

Rights: Creative Commons

KSM and Danny Pearl

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

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

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

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

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

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

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

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

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

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

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

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

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

Photo: Irargerich

Rights: Creative Commons

What BP Has to Fear

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

The short answer seems to be no.

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

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

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

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

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

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

Photo: Joe Shlabotnik

Rights: Creative Commons

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.

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.

Oil and Glory at the University

For the number of professors who are assigning The Oil and the Glory to their classes, I'm happy to discuss or reply to students' questions right here on the blog or directly by email (link at the bottom of the home page).

New York University is among those reading the book. I was delighted to speak myself to one of the classes last week -- Professor Carter Page's course Energy, Environment and Resource Security. In addition, Prof. Carolyn Kissane has assigned it to her course, Transformations in Central Asia: A Global Context. Thanks to Profs. Page and Kissane for getting the topic out before the next generation.

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To O and G Readers

A very happy 2008. To the healthy and respectful give and take on issues that all of us think are important regardless of where we live, and from which perspective we look at them. Best Steve

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Steve on NPR's Fresh Air

Listen to the Terry Gross interview with Steve