Russian History and the Passing of the Utility of Pipeline Politics

The Harvard historian Richard Pipes has triggered an interesting debate on the Internet with a long piece that leads the Weekend section of The Wall Street Journal. The piece lays out familiar Russian history -- how and why Moscow is so vexed by independent-minded neighbors; why its people go along with political repression; and its dogged pursuit of a status as "a force to be reckoned with, a country to be respected and feared." Pipes goes on to suggest policy prescriptions, including a recognition that Russians are likely to react badly to a feeling of encirclement, and a renewed attempt to persuade Moscow to adopt western political and economic values.

The piece is important not because it's perfectly presented -- I'm puzzled for example by the continued notion that somehow Russians are going to become like the West -- but because we get someone of Pipes' stature laying out once again the historical record. I myself hear dismay from Russia watchers get up in arms over the suggestion that some recent events there -- the impunity of murderers, and the public acquiescence to it all -- follow an arc going back several centuries. To them, I suggest a fresh read of Pipes. Below, I'm posting a video from a speech I just delivered at the World Affairs Council in San Francisco, arguing that time has perhaps passed by the utility of current U.S. oil policy on Russia, specifically that of pipeline politics.



At the American Conservative, Daniel Larison argues inaccurately that Pipes is merely advocating a continuation of two-decade-long U.S. policy. For instance, Larison takes Pipes to task for failing to insist on a break in NATO expansion, when the piece in fact suggests the opposite.

At the Squirrel's Nest, we get an attempt at the long view from Terry McGarty, a Massachusetts startup investor and one of Pipes' former Cambridge colleagues. McGarty quotes a well-known criticism of NATO expansion by George Kennan, one of the best diplomats the U.S. ever turned out. Kennan asserted that, among other things, NATO expansion would restore the atmosphere of the Cold War, and impale Duma ratification of Start II. Today, no one can project backward with certainty how events would have unfolded absent NATO expansion, but, in the context of Russian history, as Pipes well lays out in his piece, even in the most optimistic of circumstances there would have been at minimum the danger of Moscow creeping back into the vacuum of its former Eastern European satellites. And in a more pessimistic turn of events, eastern and central Europe could have been in similar circumstances to Ukraine and Georgia today, confronting an angry, assertive Russia at their border. Finally, Kennan wholly misjudges the Russian position on nuclear arms. Russian politics could change down the road, but since Mikhail Gorbachev the country has favored almost any nuclear arms control deal; none of the serious nuclear arms accords discussed in the post-Soviet era was ever imperiled as far as Moscow's signature was concerned. Kennan had that backwards -- they were upended in the U.S., by the Bush administration.

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.

A Murder in Russia

Today's murder of Stanislav Markelov is not proof in isolation of anything apart from that Russia continues to be a perilous place for those who challenge officialdom. But given who the lawyer was representing, and the string of high-profile murders in the country, the killing demonstrates yet again the atmosphere of impunity for assassins created by Prime Minister Vladimir Putin.

Markelov was representing the family of an 18-year-old Chechen girl, Elza Kungayeva, who was brutally raped and murdered by an Army colonel named Yuri Budanov. Budanov's crimes were unforgettably described by writer Anna Politkovskaya, who herself was murdered a little over two years ago in Moscow. In large part because of Politkovskaya's crusading journalism, Budanov finally was imprisoned for 10 years.

In Russia, it's common for prisoners to be released after serving half their term on good behavior, and last Thursday a court let Budanov go.

The 34-year-old Markelov had vigorously opposed Budanov's early release. Today, he did so again in a news conference near the Kremlin in Moscow. Moments later, a man wearing a ski mask shot him dead in broad daylight, using a pistol fitted with a silencer. The killer also murdered Anastasia Baburova, a free-lance journalist for Novaya Gazeta who was accompanying Markelov. The killer then vanished into a subway station.

What sets Russia apart from fellow members of the so-called Group of Eight nations is just such murders, organized and carried out without consequence. If you cross an invisible line in Russia, you are subject to the ultimate sacrifice -- death -- and the chances are whoever ordered it will go unpunished. Politkovskaya is one example. Another whom I researched for Putin's Labyrinth is Paul Klebnikov, the editor of Forbes Russia, who while being a fervent Putin admirer, clearly crossed someone else's line of tolerance, and was murdered in 2004.

Murders occur in all countries, but not with the frequency that they do in Russia, and not with impunity for the organizers.

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.

Labyrinth On-Line Today at Fire Dog Lake

I've been invited by the book salon at Fire Dog Lake for a discussion of Labyrinth. Join us from 5 p.m.-7 p.m. EST today. Jerome Guillet -- the French investment banker who blogs as Jerome a Paris -- will be today's host. There are no limits to the subjects. See you there.

The Sweep of Georgia's Impact

I'm just back from two weeks in Kazakhstan, looking at the ripples from the events in Georgia. The short takeaway is that Russia's short, victorious war will be felt for years to come all the way from Central Asia to western Europe. Here is the piece in this week's Business Week.



What doesn't seem to be much appreciated is that the main problem isn't really Georgia. It's that Georgia is the thread hanging off the tattered sweater; you pull it, and the sweater falls apart. Not counting the suddenly transformed politics of the Eurasian continent, but just economics, will Azerbaijan and Georgia manage to widen the Caucasus energy corridor to accommodate another 1.5 million barrels a day of Kazakh oil over the coming years, as Kazakhstan would like? What of hopes to diversify Europe's natural gas supply? The answer to both is "perhaps," but that Russia will have to be accommodated.

What would Russia want in exchange for allowing the corridor expansion to go through? For starters, as it's made plain, it wants all of the Azerbaijan state's natural gas supply, the very same volumes that the State Department is pushing President Ilham Aliyev to ship to Europe. As for Kazakhstan, it's not clear what it will be asked -- President Nursultan Nazarbayev, the balancer of great powers, has already been so deferential to Vladimir Putin that one wonders what more there is to surrender. From Europe, Putin would like continued demand for Russian gas at current or greater volumes.

One thing that's sure is that Russia doesn't have to use its Army again. Having deployed it once, Putin has made his point. Besides, Russian energy pipelines provide it all the leverage it needs without its army.

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.

Dima's Moment

Dmitri Medvedev is trying desperately to recover from failing his first test as Russia's president: After suffering a severe case of deer-in-the-headlights 11 days ago, and leaving it to Vladimir Putin to blow the trumpet of war against Georgia from the Olympics in Beijing, Medvedev now is practicing a swagger, a sneer, and presidential gutter talk.

When Medvedev was with French President Nicolas Sarkozy a few days ago, he managed to form his lawyerly mouth into the words "bastards" and "hoodlums." In another setting, he threatened a "crushing response" to any future uprising such as the Georgians displayed. After all, the Georgians were people who got "idiotic ideas in their heads."

I have been predicting that Medvedev's performance will lead to his replacement on the 2012 presidential ticket. Putin surely won't tolerate a leader indecisive at the moment of truth, and will find someone else to run (I'm among those who believe that Putin wants to rule from the prime minister's seat so as not to have to keep leaving the seat of power every eight years, which under the constitution he would have to do as president).

But Medvedev has clearly seen the error of his ways. Perhaps he's still working himself into the role, and will yet emerge as the type of naturally tough leader that Russians have come to expect.

If his heart fails again, however, he clearly will be one-term Dima, another loser from the 2008 war in Georgia.

After Georgia, A Day of Reckoning For Washington

Russia says it will start withdrawing its troops from Georgia tomorrow. If that truly happens -- and there are contrary signs -- a new, probably far more important stage of the Georgian crisis will begin. That's the assessment of the affair by the arc of countries -- from Europe, swinging south and east to the edge of western China -- that are directly affected by what Russia does.

How these countries perceive the U.S. response to the war in Georgia will determine whether Russia has effectively crippled a hard-fought, 15-year-old American effort to inject itself as a power in Russia's backyard.

So far, much ink has been spilled over whether the U.S. and Russia are in a new Cold War. In Washington, we hear that the era of a post-Soviet U.S.-Russia alliance is over. The Kremlin counters that the West is intent on provoking it, and thwarting its natural rights as a great power.

The truth is that Moscow's presumptions are essentially correct -- the U.S. has conducted a definitively anti-Moscow policy on Russia's western and southern rims, one dressed up as reformist- and energy-minded, but nonetheless centrally designed to contain Russia within its borders.

But this policy well-suits American security aims, and those of the West as a whole. Conceived in the Clinton administration, it foresaw this very day, when then-forlorn Russia would regain its feet and possibly threaten the independence of its traditional colonial backyard.

One thing to keep in mind is that Russian disgruntlement with Georgia didn't originate with NATO expansion, Kosovo independence, Russia's resurgent petro-power, or Georgian President Mikheil Saakashvili's alleged jokes about Vladimir Putin's height.

Russia's first military attack on Georgia was not ten days ago but in 1993, when Moscow backed Abkhazia in its military separation from Georgia. In the subsequent years, then-Georgian President Eduard Shevardnadze was twice nearly assassinated, attacks that, in interviews with me and others, he blamed on Russia and his insistence on Georgia becoming the strategic transit route for the Baku-Ceyhan pipeline.

In other words, there's strong reason to believe that nothing Saakashvili did, short of capitulation to Russian domination of Georgia, would have satisfied Moscow. Friends tell me that Shevardnadze finally found an accommodation with Russia. If so, it was an accommodation that included the threat of assassination if he went too far.

Georgia wasn't the rationale behind American policy. But the Caspian Sea policy, conceived, as O and G readers know, by a today-forgotten National Security Council officer named Sheila Heslin, did attempt to get Russia accustomed to living within its own borders, and not threatening its neighbors.

The policy was dual. It involved a continuation of the expansion of NATO initiated by President George H.W. Bush, in order to prevent a future, resurgent Russia from gobbling up pieces of the former Soviet bloc in eastern and central Europe. And, on the Caspian, to the south of Russia, the U.S. promoted the construction of energy pipelines to link the Caucasus and Central Asia to the West, and provide them the financial wherewithal to withstand any Russian economic pressure. As a transit point for three of the new pipelines, otherwise-isolated Georgia, situated right on Russia's border, became a U.S. strategic partner.

After 9/11, the Bush administration -- carrying the policy further -- established military bases in Central Asia for the assault on Afghanistan, and then left them in place after the Taliban were dispersed.

The policy made sense considering U.S. interests. The West had a stake in making sure that Russia did not again become a threatening power; by encouraging Russia not to expand back into its former Soviet lands, it might express its nationhood in other ways, such as in business. (For those who see all policy as oil-generated, remember that there was no oil shortage in the 1990s; oil was much-discussed, but it was an instrument of policy -- how to give the Caucasus and Central Asia some breathing room from Russia -- rather than the rationale for it.)

Many of the eight presidents of the region embraced the U.S. agenda. At once, there was a lever against centuries-old Russian dominance.

But ten days ago, Russia put that declaration to the test. With its assault on Georgia, it seemed to expose the U.S. policy as a superpower vanity.

And it seemed true that Washington was caught off-guard. It seemed either to have forgotten the rationale behind its Caspian Sea policy, or, more probable, to have staked its policy on the hope that by now Russia had changed, and would not rotely use its military in the face of a perceived challenge.

Whichever the case, Russia's invasion of Georgia threatens the very real gains of these 15 years. If Russia is seen to have come out ahead, the U.S. may retain its influence in Europe, where Moscow could even suffer a backlash -- Europe could decide after all to build new pipelines to diversify away from Russian natural gas. But America's carefully built role as a great power in Russia's south would be in jeopardy.

The Central Asian and Caucasus leaders are watching.

I myself wonder now whether it matters if Russia in fact does withdraw all the way into Abkhazia and South Ossetia (which I doubt. I think Russia will maintain at least some troops outside the territories. It seems improbable that Russia will entirely give up the ground it gained within Georgia proper.).

Russia has demonstrated that it can and might cross borders of its former Soviet colonies when it sees fit. In Russia's view, these are not international borders; they are Georgia, they are Kazakhstan, they are Azerbaijan -- not real independent states, but former Russian territories.

Ultimately, Azerbaijan's Ilham Aliyev, Kazakhstan's Nursultan Nazarbayev and Turkmenistan's Gurbanguly Berdymukhamedov -- the stewards of the region's great energy wealth -- understand the language of power.

They understood when a parade of American officials visited and argued that it was wise to cultivate a relationship with the most powerful nation on Earth.

The trouble is that, these days, it's not clear any longer that the U.S. is very powerful in its declared zones of strategic interest.

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.

The Genocide in South Ossetia

The death toll is in for South Ossetia, where Russia accused Georgia of genocide, citing the murder of more than 1,500 civilians for a humanitarian invasion of Georgia.

The figure appears to be about four dozen. Quoting a hospital where virtually all the dead appear to have been taken, since the morgue was without electricity, The Wall Street Journal's Andrew Osborn puts the figure at 45; and Human Rights Watch says it was about 44. There may have been an additional few victims whose bodies did not reach the hospital.

O and G readers from the State Department and elsewhere have written me privately that they regard Georgian President Mikheil Saakashvili as reckless, irrational, and megalomaniacal. They and others I trust regard Saakashvili with opprobrium for bringing on Russia's wrath.

That Russia would defend South Ossetia was certain. But increasing evidence makes the attack look well pre-planned, not spontaneous. And the authentic death toll makes the justification appear to be a pretext for that attack.

I had a Skype call from Tbilisi tonight from Lawrence Sheets, with whom I reported from the Caucasus from 1992 through 2003. He was then with Reuters; now he's the regional representative for the International Crisis Group.

Sheets says that he's pored over the events leading up to the fighting, and says that Saakashvili was left with a choice on August 7th -- allow a devastating South Ossetian attack on Georgian villages adjacent to the regional capital of Tskhinvali, or stop it. And Saakashvili decided to stop it. Sheets doesn't regard that as reckless.

The course of events make it appear that the West may countenance both effective Russian annexation of both South Ossetia and Abkhazia, under the guise of a form of independence, and occupation of swaths of Georgia proper. The best scenario seems to be only temporary occupation before a permanent imposition of the former -- the annexation part.

We got a picture of what that occupation could look like, at least for now, in the Georgian city of Gori today. Under the watchful eyes of Russian soldiers sitting on tanks, a paramilitary soldier stole two new SUVs belonging to United Nations officials, then dispersed them and journalists by firing into the air. As described by Yaroslav Trofimov, my former Wall Street Journal colleague, three of the U.N. officials escaped by jumping into his car, which then sped away.

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

Arranged Marriage

The next worse thing to a politician deciding for you that he's going to be your leader is your neighbor deciding who is going to be your leader.

That's the situation in Georgia, and why I think, unlike some other commentators, that Russia won't likely succeed -- now that the actual shooting has been halted -- in ousting President Mikheil Saakashvili.

Across the former Soviet Union, ordinary people don't decide who is president. Cabals of powerful people -- regional strongmen, spy agencies, billionaire businessmen, old Soviet apparachiks -- decide among themselves. They say, "Hey Dima, you be president. It's good for the gang." When the voters go to the polls, Dima magically receives 88%.

That method of selection would include Vladimir Putin, his successor Dmitri Medvedev, plus almost all the presidents of the Caucasus and Central Asia. The exception is Ukraine and the Baltics, which have reasonably authentic elections, and do kick out the rascals when so moved.

Lots of times the majority of voters actually favor the winner, but that's besides the point.

The leaders of the two breakaway regions of Georgia that are currently in the news are in power specifically because they are favored by Moscow. In other words, at home in South Ossetia and Abkhazia, it's no shame to be a stooge of Moscow. It's the same in Chechnya, as we've
discussed previously on O and G -- President Ramzan Kadyrov is a delighted instrument of Russian power.

Putin tried to choose Ukraine's leader, but it backfired, which is how Viktor Yushchenko was elected. It's similar in Georgia. The contempt of the Kremlin toward Georgians is equalled by the Georgians toward the Kremlin.

So that, even if Saakashvili is despised by some other Georgian politicians, none would get anywhere near Russia. It would be the kiss of political death.

If Saakaskvili is removed prematurely, for whatever reason -- which as I say I do not expect -- look for the rise of an equally nationalist Georgian leader, perhaps quieter, less egotistical, but still anti-Russian.

Those are Georgian politics.

The Call of Past Regrets

Iraq is an interesting prism through which to look at Georgia. After the 1990 Gulf War, certain intellectual quarters in the U.S. regarded Iraq as undone business -- neo-cons and others wanted to go back and remove Saddam Hussain as a priority.

One wonders whether just this sort of thinking is at least partly a motivation for Vladimir Putin's relentless push on Georgia.

The antecedent in this case would be 1993, when Russian-backed separatists in Abkhazia seized power, and triggered a drive by other anti-government forces onto the capital of Tbilisi. I was reporting for Newsweek there when the drive was halted about an hour and a half west of Tbilisi, ironically by Russian forces sent to keep the country from outright disintegrating.

In Moscow, some may regret that moment, which saved then-President Eduard Shevardnadze. Perhaps they wish that the rebels had captured power, and installed a perhaps more pro-Russian leader.

The main thing I learned about Russia while researching Putin's Labyrinth is that, in pursuit of its aims, Russia practices a policy of bespredel, or anything goes. By way of example, one case I used was the 2006 murder of KGB defector Alexander Litvinenko with a nuclear isotope, which seemed about as stark as one might get.

But the current Russian assault is another dramatic case of bespredel. If Russia's aim were to secure the lives of repressed peoples, as Putin claims, that was accomplished early with the Georgian flight from South Ossetia.

But the Russian push out of Abkhazia and into the town of Senaki, and the reported occupation of police buildings next door in Zugdidi, demonstrates a broader objective.

The Georgians have announced that the country is effectively cut in half now; it previously had said that its troops had withdrawn to protect Tbilisi. I wonder whether all the soldiers made it since Georgian troops stationed in the West might be trapped on the other side of Gori, which is now in Russian hands.

If in fact Putin is seeking a return to unfinished business, he may be disappointed.

Georgia isn't Chechnya, where President Ramzan Kadyrov was installed by Putin and is happy to do his bidding. No Georgian politician would allow himself/herself to be injected into power; and if one did, he/she would last about five minutes. Any replacement for the reviled Mikheil Saakashvili might not be as ascerbic, but would be just as pro-Georgian and anti-Russian.

Georgia, Russia and Rethinking China

Years after his humiliating knockout by Muhammad Ali, the boxer George Foreman returned to the ring to a string of triumphs and the world championship despite being in his 40s. It was more marketing than sport. When asked about his choice of opponents, Foreman famously remarked that he didn't fight anyone his mama couldn't whup.

That's one way of looking at Russia's effective annexation of South Ossetia and Abkhazia over the last 24 hours. With apologies to my Georgian friends, Georgia simply isn't a serious military actor; with the exception of the Chechens and Armenians, none of the Caucasus peoples is (which is why the Abkhazians and Ossetians are relying on Russia to fight their battles).

Where Foreman was smart is that he never got back in the ring with Ali. Fifteen years after its near dismemberment by Russian-backed forces, however, Georgia wasn't so wise. It doesn't mean a return to 1993, which ushered in a literally dark decade, when Georgia often lacked even electricity to light itself. But Russia's military demonstration does show that Georgia isn't an independent actor at the moment.

Vladimir Putin (for it's clear now who is truly in charge in Moscow) has also shown that Russia doesn't intend for Georgia to join NATO. And NATO has shown that it doesn't have the gumption or inclination to stand up to Russia.

The question for the U.S. and the West as a whole is fundamental, and goes back to the original objective of the Western energy corridor: As O and G readers know, Washington's rationale was not sending a million barrels of oil a day to the West, but turning the Russian-dominated Caucasus and Central Asia into a financially independent, pro-Western region.

Georgia is a key component of the strategy, as a crossover point for the Baku-Ceyhan oil pipeline, its companion natural gas line, and the smaller Baku-Supsa Early Oil line.

Georgian absorption into NATO is effectively off the table. But does that mean an end to the West's challenge to Russia's regional energy power?

The short answer is no -- all these lines will continue to operate. Russia won't interfere with them. Why? Because its larger economic-political strategy in Europe depends on not spooking the Europeans, who could then be encouraged to back the construction of more non-Russian energy pipelines to Europe, and thus dilute Russian power there.

(I just received reliable confirmation that, contrary to a statement by Georgia, Russia did not bomb near the Baku-Ceyhan line. Bombs were dropped near the smaller Baku-Supsa line, which leads to Georgia's Black Sea, but caused no damage. The Supsa line passes near South Ossetia so it's possible that this was a fog of war situation.)

So Russia will let the Baku lines be. But it seems to me that an expansion -- the proposed trans-Caspian oil and natural gas lines, and the proposed Nabucco line to Europe -- are now effectively dead. No Caspian president would gamble his survival by embracing such a project, and that's precisely how they would calibrate such a decision.

The West simply has too few levers with Russia.

But there is one, and it's China. Since the goal of U.S. policy is energy independence for the Caucasus and Central Asian states, why does the oil and natural gas have to go West?

China is building oil and natural gas lines from Turkmenistan and Kazakhstan to Xinjiang and beyond. Washington has already quietly gotten behind these efforts, but it might be the wisest course to turn up the volume by offering actually to help to build such lines.

The next U.S. president would have make such a shift part of a larger, well-considered China strategy. Russia would hate such a U.S.-China energy tandem, but that is what leverage in this region is all about.

Huffing and Puffing in Georgia

With so much hyperbole flowing in the conflict in Georgia -- on numbers of casualties, on the aims of the opposing sides -- where should one focus one's attention?

I remain tuned to Georgia proper, and not South Ossetia itself, or even the town of Gori to the south that has been bombed by Russian jets.

Specifically, Georgia claims that Russian naval carriers are in position off Georgia's Black Sea coast, and are readying to offload troops. If accurate -- I've seen no confirmation -- and these troops do occupy ground in Georgia itself, and not simply within the pro-Moscow separatist enclave of Abkhazia, this will be a different war. This would be Russia declaring who is in charge, a message that would be intended not just for Georgia, but for the West, which has been considering absorbing Georgia into NATO.

It would be the same were the scores of Russian troop carriers reported to have poured into South Ossetia to cross into Georgia proper.

A far more remote possibility would be Russian bombing of the trans-Georgian oil or natural gas pipelines. Georgia claims that Russia has already targeted -- but missed hitting -- the 1,000-mile Baku-Ceyhan oil pipeline, but I doubt the account. Such an attack would be regarded in the West as a direct assault on Western interests.

As long as the conflict remains in and around South Ossetia, the fighting can be seen as a bloody uptick in the Caucasus version of huffing and puffing. But it is containable.

Georgia and Russia: Itching for a Fight, Now They Have One

At O and G, we usually ignore the crude language, or errantly fired shot, of the various hotheads in the Caucasus and Central Asia. The forecasts of possible calamity are almost always alarmist.

Today's flareup of direct combat between Russian and Georgian forces is not one of these cases. Remember the events and language that preceded Vladimir Putin's 1999 burn-the-fields, raze-the-cities offensive on Chechnya, and read this quote today from Russian President Dmitri Medvedev: “I am obligated to defend the lives and dignity of Russian citizens, wherever they are located. We will not allow the unpunished killing of our fellow citizens. Those who are guilty will suffer the punishment they deserve.”

Georgia and the South Ossetians had already been fighting for a year or more when I moved to Tbilisi in 1992, and the hostilities never really halted. The Ossetians rightly bristled at Georgia's misplaced nationalism, and broke away. Then, Moscow -- forever looking for a pretext to express its contempt for Georgia -- glommed onto the South Ossetian cause, granting them Russian passports and citizenship.

Times have changed. Current Georgian President Mikhail Saakashvili is not one with Zviad Gamsakhurdia, the early-1990s Georgian supremist whose rantings helped to trigger Georgia's loss of South Ossetia and Abkhazia. Yet the fighting goes on. Recent back-and-forth shooting between the Georgians and the Ossetians escalated today in a Georgian offensive on the Ossetian capital of Tskhinvali. Now Russian troops have crossed the border into South Ossetia.

In the past, Georgian troops have proven incapable of standing up to the Russians. In 1993, I watched as the Russians rolled over the Georgians in Abkhazia. The result was the near-dismemberment of Georgia itself.

That is the possible consequence of today's events. Only this time Georgia is far more important to the West -- in 1993, there were no trans-Georgian oil pipelines.

If the conflict escalates into Georgia itself, look for oil prices to escalate. And look for NATO to decide how to respond.

It's Official: The Caspian is a Terrorist Target

The surprise isn't that terrorists appear to be responsible for an explosion that has shut down the Baku-Ceyhan oil pipeline, and sent world oil prices up. It's that no such attack occurred earlier in the Caspian Sea region.

On Tuesday, a pump near the eastern Turkish town of Refahiye blew up. The thousand-mile pipeline, which connects the Caspian and Mediterranean seas and ships a million barrels of oil a day, could be shut for two weeks.

A Kurdish rebel group known as the PKK says it's responsible for the explosion.

If accurate, the attack underlines the vast target presented by the energy infrastructure that's gone up on both sides of the Caspian, and on into Turkey, since the 1991 Soviet collapse.

During the 11 years I lived on the Caspian, I frequently asked oilmen and diplomats about any precautions being undertaken to prevent terrorism, say, at the Tengiz and Kashagan oilfields in Kazakhstan, and the offshore Baku fields in Azerbaijan. After all, the Caspian is just north of Afghanistan and Pakistan, with all that implies. These fields currently export about 1.3 million barrels of oil a day, and the volume will increase to about 4 million barrels a day in about a decade or so.

I never got back anything but blank stares. I assumed that meant the threat was understood, but that no one was going to discuss preventive measures in place.

But this week's blast makes me wonder. BP deliberately built the pipeline underground, mostly to prevent the siphoning off of oil by thieves, and to forestall attacks by the various militant groups that populate the Caucasus and Turkey.

The vulnerable spots were always the eight pump stations along the route -- they are completely in the open. NATO and the U.S. had sent trainers to help assemble a strong protective force for the entire infrastructure, and I had assumed they were particularly concentrated at the pump stations.

Security may be particularly tight at the stations. But the apparent attack shows that the infrastructure remains vulnerable.

Anything Goes In Russia: What a President Obama or McCain Should Do

John McCain said it best the other day, quoted by The Washington Post's David Broder: "We have to deal with them, negotiate with them, especially in light of their hoard of petrodollars. But we can't sit by and watch a country murder people in England."

McCain was referring to the 2006 murder of KGB defector Alexander Litvinenko. As you recall, someone slipped a nuclear isotope into Litvinenko's tea at a London hotel, and Britain has filed murder charges against another former Russian intelligent agent who's now a member of the country's Parliament. Moscow refuses to extradite the man, whose name is Andrei Lugovoi.

Much is made of Russia's muscular attitude surrounding its oil. As McCain suggested, the rise of oil prices has given Russian leaders Vladimir Putin and Dmitri Medvedev a megaphone abroad -- where the world largely ignored Russia when it was down economically through the 1990s, it now feels almost obligated to give Moscow an ear because of the petro-leverage it exerts, especially in Europe. That the Russians appear again to be pushing a Western oil company out the door -- this time BP -- seems somewhat troubling to the market. But, since other oil companies have had their assets squeezed previously, no one is shocked. It seems more like, Well, there the Russians go again. That reaction is appropriate. But using the leverage of its energy resources for political gain in Europe is another matter.

I am often asked who I think would handle Russia better starting next year -- Obama or McCain. I reply that both would do well. Whether one comes from right of center or left of center, one will reach the same place, which is that Russia is going to pursue interests that are contrary to the West's. That is especially the case in oil.

One thing I learned over again during the last 18 months or so in researching Putin's Labyrinth is that, when Russia pursues its interests, its approach is "anything goes." That is, Russia will go to any length to achieve its aims. That's why, when someone decided to murder Alexander Litvinenko, he or she did not order him pushed off a subway platform or shot with a pistol; it was decided that he would be poisoned with a nuclear isotope.

When the next president is sitting in front of Russian interlocutors, he cannot underestimate Moscow. Because in its view, anything goes.

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Labyrinth At The Commonwealth Club

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

The British Experience: Oil and Murder

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

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

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

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

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

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

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

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

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

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The Economist reviews Labyrinth

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

Prediction: Sub-$100 Oil

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

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

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

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

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

Labyrinth At Google

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

Russia's Double Nelson

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

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

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

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

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

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Gasoline Prices: To Trust or Not To Trust

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

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

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

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

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

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

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

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

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

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

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

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The Old and the Not-So

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

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

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

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

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

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

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

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

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

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

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Six Questions from Harper's Magazine

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Latest Labyrinth Review

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

Labyrinth Excerpt

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

Catfights and Bystanders in Russia

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

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

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

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

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

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

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

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

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

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

Photo: gaborcselle
Rights: Creative Commons