Labyrinth At The Commonwealth Club

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

Book Note

Random House has advanced the publication of Putin's Labyrinth by three months. It is coming out in just a few weeks -- on June 24th.

Annals of the Rising Lilliputians

The center of gravity of power is shifting relentlessly from the West. The most successful cars are made in Japan. The power of the purse is shifting to less profligate countries like Singapore, and petro-powers like Kuwait. Manufacturing has gone to China. Energy is in the hands of Saudi Arabia, Russia and others.

Much of this shift affects the legendary Big Oil companies, which are being pummeled from all sides.

Now comes another hit. Until now, even if they couldn't control the resources, at least they could buy the oil and natural gas and earn the markup from lucrative finished products. But the world's petro-powers are no longer satisfied earning hundreds of billions of dollars from the mere sale of $100 oil. They want the entire profit chain from their oil and natural gas -- from power generation, retail sales at the pump, refining and chemical-making.

To the degree this happens, it takes away the daily bread of the oil companies, and shifts more power into the hands of the petro-powers. They have even more money to influence global finance, buy up pieces of the Western economies, and if they so desire -- as Russia does -- to sway political events.

Two pieces in today's New York Times go into this topic. One, by Peter Goodman and Louise Story, talks about the purchase of pieces of the economy. The story is decent as a survey, but makes a common mistake by evaluating these purchases in the context of the entire economy, and thus diminishing their importance.

The more relevant context is within industries and slices of industries, for instance in banking and specifically investment banking. As we've discussed on this blog previously, some investment bankers predict that so-called sovereign wealth funds -- the investment arms of these cash-rich states -- will eventually outright control the global finance sector.

In the second piece, Jad Mouawad talks about the aspirations of Saudi Arabia. The article describes a giant new petro-chemical complex under construction in the Saudi city of Rabigh, and the king's idea to build six new industrial cities. This is all reliant on $100 oil, which makes one suppose that the kingdom will do all it can to keep prices right about there.

Why Russia is Winning the Pipeline War

Vladimir Putin.

That's how Russia today made another advance in one of the most important battles under way anywhere in the world at the intersection of commerce and geopolitics -- for control of the natural gas market between Central Asia and Europe. This battle will decide who dominates the European energy market, and obtains commensurate political leverage in Europe and Central Asia. Russia already supplies more than 30% of Europe's natural gas and oil.

In another example of the role of personal diplomacy in the battle, Putin was in Sofia today and signed a deal nailing down Bulgaria's role as the principal transit point for the South Stream natural gas pipeline, which is meant to cement Russia's dominance of southern Europe's gas supply.

Putin had previously used the prestige of the Kremlin to push through plans for a separate pipeline serving northern Europe, called Nord Stream. And last month, he secured the natural gas supply required to feed the two lines. Turkmenistan and Kazakhstan sold a large portion of their natural gas supply for the next thirty years, and agreed to a third pipeline to take their natural gas to Europe.

One would hardly know that Russia has a competitor in this epic market battle. But it does -- the West, specifically the European Union and the U.S., which have advanced their own dual-pipeline idea. They are a proposed trans-Caspian natural gas pipeline, also starting in Turkmenistan, and hooking into a proposed Nabucco pipeline into Europe.

How is the Western effort faring? It's stalled at the starting gate. Indeed, while Putin personally jets around the world, wining, dining and flattering the presidents of other nations whose favor is required, no Western leader has invited any of them for a personal meal. The U.S. hasn't even managed to select a senior statesman to lead the effort since Thomas Pickering dropped out and decided to stay in the private sector.

If it were not for the way that post-Soviet history has been so topsy-turvy, with a winner one day ultimately losing, I'd say the battle is over. For starters, it's high time for Turkmenistan President Gurbanguly Berdymukhamedov to spend some time at Camp David.

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Brits Go Home

The latest in the fracas between the U.K. and Russia would be amusing were its origin not so serious. Here it is in a nutshell: Russia, angry that Britain won't let bygones be bygones in the London poisoning murder of Russian defector Alexander Litvinenko, has sent a message to that effect by closing down Britain's cultural arm in cities outside Moscow. Britain, angry that Russia presumes to have control over its own territory, says these British Council offices will remain open. As one might expect, we now have a farce involving the St. Petersburg police, the son of a lord (yes this country still calls grown men "lord") and fears of "provocative games."

This all goes back to Litvinenko's assassination in November 2006 by a rare nuclear isotope called polonium-210. Britain rapidly tracked back the polonium to Moscow, and specifically to two former Russian intelligence officers who, for reasons unproven as yet in a courtroom, apparently had this alpha-emitting isotope all over their clothes, and left traces in Hamburg and London. Britain has filed murder charges against one of them, a recently elected member of the Russian Duma named Andrei Lugovoi. Vladimir Putin has chosen to treat the case similar to a traffic violation, and argue (innaccurately) that he's constitutionally barred from extraditing Lugovoi. Britain says rightly that the case is anything but run-of-the-mill, and that Putin should send Lugovoi to Britain post-haste.

Meanwhile, Britain has expelled some Russian diplomats, and Russia has ordered the British Council offices in St. Petersburg and Yekaterinburg closed. For reasons known only to God, Gordon Brown and perhaps the Queen, Britain has rejected Russia's right to close these offices, and left its staff there. So yesterday you had the spectacle of Putin upping the stakes by having the FSB (successor to the KGB) summoning some Russian employees of the British Council for questioning, and detaining the head of the St. Petersburg office, Stephen Kinnock (whose father is Lord Neil Kinnock, a British politician), for an hour on an alleged traffic violation. In the case of the FSB questioning, the intelligence agency said it was acting to prevent them being from used by Britain as an "instrument in provocative games" by Britain, according to the Bloomberg account.

I'm sympathetic with the U.K.'s case. You are right to pursue the Litvinenko murder. But you don't have a leg to stand on in this latest turn. In the world of diplomacy, you have to pack up those offices.

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Two Hours in Astana

My mother's lawyer boyfriend once offered up some legal advice when I was in a dispute with a contractor: It'll all be settled on the courthouse steps. In other words, even though logic says it's less stressful to resolve one's differences at once, and the final deal often doesn't differ much from what's offered along the way, the actual practice is that one or both parties simply won't walk over the line until the very last possible moment.

So it apparently was yesterday in a settlement of the months-long dispute over the supergiant Kashagan oilfield. Recall that new development of this 13-billion-barrel behemoth has been stalled since the summer over a five-year delay in first oil, and a huge cost overrun.

Take a look at the timeline of the weekend events. At the invitation of Kazakhstan's Nursultan Nazarbayev, the chairmen of most of the world's biggest oil companies had readied to pile in to the capital of Astana for a resolution last Friday. They were put off for two days before meetings finally commenced. The trouble was already apparent when Christophe de Margerie, CEO of France's Total, met with the state oil company on Saturday, then simply left town; that's something that a CEO simply doesn't do when an important president has summoned you.

That left Exxon CEO Rex Tillerson, Eni's Paolo Scaroni and Shell's Jeroen van der Veer meeting for nine full hours -- until midnight -- at a restaurant with Prime Minister Karim Masimov.

At 1:56 a.m. today local time, Bloomberg's Nariman Gizitdinov and Lucian Kim filed the following lead paragraphs in a story:

Eni and partners failed to reach an agreement with the Kazakhstan government over stakeholdings in the Kashagan oil field, Eni Chief Executive Officer Paolo Scaroni said, adding he doesn't expect to return to the central Asian nation ``for a long time.'' ``We haven't reached an agreement yet,'' Scaroni said in an interview early today in Astana, the Kazakh capital, after a nine-hour meeting with Kazakh Prime Minister Karim Masimov and the chief executives of companies including Exxon Mobil and Royal Dutch Shell.

Less than two hours later, at 3:49 a.m. local time, Reuters filed the following:

Kazakhstan's KazMunaiGas has reached a deal with an Eni-led consortium over developing the giant Kashagan oil field which will give it an equal share in the project with the largest shareholders. In a statement, the Kazakh company said all companies in the consortium … had agreed unanimously to the new terms.

What happened during those two hours?

The deal on the courthouse steps. Here is a pretty good Bloomberg piece on the deal. Here's Guy Chazan's from The Wall Street Journal.

By the look of things, Masimov and the state oil company pushed matters pretty far and seemed so unlikely to budge that, to put it bluntly, the CEOs of both Eni -- the field operator -- and Total threw up their hands.

At which point Nazarbayev probably stepped in and told his negotiators to agree more or less with the last deal on the table. This is conjecture, but seems likely in the context of how previous disputes in Kazakhstan have been settled.

“Now, a fair decision has been made,” the president’s official web site quoted him as saying in a meeting with company representatives today after the resolution was announced. He said, “After long and difficult negotiations, the Kazakhstani side has protected its interests. … We have prevented a breach of the contract, which was possible if we did not agree.”

Takeaways from the deal: According to The Wall Street Journal, the companies will make an immediate, good-faith payment of $300 million to Kazakhstan. Over the life of the contract, which expires in 2041, they will pay an additional $5 billion to the country, depending on the price of oil. And they will begin to pay the money earlier than previously agreed.

Kazakhstan will pay a sweetheart price of $1.78 billion for about 8% of Kashagan, raising its share of the field to 16.8%, the same as Total, Shell, Eni and Exxon.

After Kashagan comes on line in 2011, Eni will lose operatorship. Kazakhstan appear to have won the final say on how the field is run, with the four top shareholders divvying up duties for developing it.

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The Dislodging of Another Leg From Western Primacy

The news isn't grand for those accustomed to calling the shots for the last century and more. And it all gets back to oil.

As has been discussed on this blog and elsewhere, Big Oil is being eclipsed by national oil companies. Exxon, Chevron, BP, Shell -- the western companies that have swaggered their way through the halls of power since the beginning of the last century -- are losing out to Aramco, Gazprom, PetroChina, and so on.

Now another underpinning of Western primacy in the world -- global finance -- is going the same way. Take a look at this piece in the latest Business Week by Emily Thornton and Stanley Reed. It's on the so-called sovereign wealth funds, the diversified investment vehicles for the oil profits siphoned away by the six most important Gulf states: Saudi Arabia, Kuwait, Qatar, Abu Dhabi, Dubai and Oman.

Takeaways from this article: These states have amassed a stunning $1.7 trillion in their sovereign wealth funds, as much as all the hedge funds in the world combined. And their $180 billion in 2007 profit on these investments amounted to more than half their total $315 billion in profit from oil and gas. The money quote from Gregory A. White, managing director at Thomas H. Lee Partners: Soon "they will be the industry. We will be working for them."

When you add on the $156 billion held in Russia's Stabilization Fund and the $20 billion in Kazakhstan's National Oil Fund, these investment vehicles are buying up pieces of Western companies from Texas to Hong Kong and changing the finance world.

Merrill Lynch needs a $4 billion infusion to shore itself up after an expected $15 billion in mortgage writedowns, as The Wall Street Journal and The New York Times reported in the last couple of days? Don't be surprised if it's one of these funds coming to the rescue. Both Merrill and Citigroup have already received a combined total of some $13 billion in cash through stock sales to Abu Dhabi's sovereign wealth fund. The Journal reported yesterday that both are back in the Middle East to get more cash. Citigroup needs some $10 billion, according to the piece.

These are not silent investors, as were the Middle Eastern petro-states in the 1970s and 1980s. I watch Russia most closely in this regard, and Moscow has discovered that, in the 21st century, it's easier to march across Europe doing business than with an Army.

It's another dimension in the shift of the center of gravity of global influence.

UPDATE: The Wall Street Journal is reporting that the Chinese Development Bank and Saudi billionaire Alwaleed in Talal are part of a group coming to the rescue of Citigroup. Alwaleed already is Citigroup's second-largest individual shareholder.

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Finding An Honest Man in Big Oil

Those who follow oil seem forever doomed to be in a way like Diogenes, strolling with a lantern, looking for an honest man. There's always the nagging suspicion that one isn't getting the whole story about the state of global energy, and prices at the pump.

Christophe de Margerie, the walrus-mustached CEO of France's Total, champions himself as that singular candid man. A member of a select club that's traditionally delighted in its mysteriousness, De Margerie is the much-deplored, indiscreet fellow who spills the group's secret handshake to the world.

In this case, the whiskey-swilling Frenchman has been telling the world that the oil industry has or is about to reach a peak in the volume of oil it can produce. Furthermore, he's quoted in a piece posted today by the Economist, all his brother oil bosses “think the same. It's just a question of whether we say it.” The article is worth reading.

Where the fierce debate on peak oil gets mucked up is on the geology -- has the world used up half its available oil resources or not? De Margerie neatly ducks that labyrinth by saying it's irrelevant.

What matters isn't how much oil is there, but how much can be produced. He says there simply isn't sufficient skilled manpower, technical equipment and willingness in the petro-states to produce much more than current levels of about 85 million barrels per day.

De Margerie makes a lot of sense. If one extrapolates, there will be much more motivation for fuel economy technologies, the development of non-carbon fuels, and general demand reduction. That's because, even if the West's fuel appetite is more or less stagnant, the economies of India and China are becoming hungrier and hungrier for energy. So there's going to be more competition for that somewhat limited volume of oil.

Russia's New Abbott and Costello Defense

Vladimir Putin -- listen up.

You now have an airtight defense against those who have savaged you ever since you temporarily cut off natural gas shipments to Europe a couple of years ago in a pricing dispute with Ukraine. It would make Abbott and Costello proud.

Last week, Turkmenistan made news by cutting off natural gas supplies to Iran. The Central Asian nation, the runt forever being picked on by neighborhood bullies, had been shipping 23 million cubic meters a day to Iran, but is tired of being short-changed by Russia and Iran for its natural gas and wants more money. Russia is now paying $130 a thousand cubic meters (versus $350 it plans to charge Europe); Turkmenistan presumably wants at least that much from Iran.

Here's where the story gets wind. You see, even though Iran buys natural gas, it also sells it. But this is an incredibly cold winter, and Iranians are freezing. The country needed those Turkmen imports. So it has cut off Turkey, which was supposed to receive 30 million cubic meters a day from Iran but is only getting about 5 million.

Except it's also mighty cold in Turkey. So it has cut off Greece.

The poetic coda? The rescue squad is from Russia. Gazprom, the lightning rod for things that go wrong across Eurasia, is shipping an extra 8 million cubic meters of natural gas a day to Turkey and 1.5 million cubic meters a day to Greece.

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Report: What the Kashagan Deal May Look Like

Milano Finanza, the daily in the home city of Italy's Eni, is reporting the skeleton of a final settlement of the Kashagan dispute that includes a surprising sweetener for holdout Exxon. The report quotes no sources. I found Thompson Financial's pickup of the piece but not the original.

With at least 13 billion barrels of proven reserves, Kashagan is the largest discovery in the world in the decades. New work there has been suspended for months in the dispute over a five-year delay in producing first oil, and a huge cost overrun.

The basics of the agreement as reported by Milano Finanza are a $3.5 billion fine and relinquishment of a total of about 8% of the supergiant field, which would double Kazakhstan's stake to about 16%, equivalent to top shareholders Eni, Exxon, Shell and Total.

But that's been more or less known for months. The more interesting part is that Exxon -- the squeaky wheel -- may have gotten a bit more than anyone else for its hard-nosed stubbornness. Recall that Exxon has been the holdout for weeks, seeking to make clear that, unlike its rivals, it's no pushover.

The report says that Exxon will receive unspecified new exploration rights plus an extension of the longevity of its deal at Kashagan's sister field, Tengiz. If that's accurate, one has to applaud the company. It would mean that it continues to challenge the newly powerful petro-states and at key times be treated differently from its competitors. Recall that so far it's the only major not to buckle under pressure in Russia.

Confirmation of the settlement may be known Friday, when Kazakhstan's President Nazarbayev has called together the representatives of all the foreign partners. When he makes such moves, he usually has the terms of a deal in mind.

Update: Gabriel Kahn at The Wall Street Journal reports that the Nazarbayev meeting is delayed until at least Sunday.

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Finally, Some Sanity on Missiles

The U.S. proposal to install an anti-ballistic missile shield in eastern Europe appears unlikely to advance under the watch of its conceiver, President Bush. The new Polish government says it won't permit the shield right now because it's not clear that the next U.S. president will want it, and meanwhile it's not worth aggravating Russia.

Bush wants to place components of the shield in Poland and the Czech Republic. Russia's Vladimir Putin has opposed it, and Polish Foreign Minister Radek Sikorski has provided his government's position in an interview with the Polish newspaper Gazeta Wyborcza. They were kindly passed on in an article yesterday by Judy Dempsey at The New York Times.

Poland's shift is gratifying news for those like myself who think that there are so many divisive issues on the table with Russia that there's no reason to add another, especially when the shield is unreliable at best when decoys are used. When the shield definitely works, let's talk deployment.

The Polish position is built on multiple levels. It's tied up with Moscow's plans to build the Nord Stream natural gas pipeline from Russia to Germany, crossing the Baltic Sea and averting nations with which Russia has tense relations, like Poland.

Polish Prime Minister Donald Tusk wants Russia to reconsider Nord Stream. If the gas continues to cross Poland, Russia would find it harder to cut off the country during predictable periods of strained relations. Poland has also raised environmental concerns about installing a pipeline in the Baltic.

Hillary, McCain and Jingoism

I was in Baku on an oil story when Hillary Clinton visited Central Asia during the 1990s, but when I got back to Almaty I asked around for local impressions of her. The visit went over well, I was told by her Kazakh and Uzbek hosts -- she stopped by a pre-natal care clinic in Almaty, and met with Kazakhstan's Nursultan Nazarbayev and, in Tashkent, with Uzbekistan's Islam Karimov. But I also heard a singular personal observation from the amused locals -- Clinton, it turns out, doesn't have an athlete's slim legs.

How to respond to an immature remark? Probably with silence, which is what I did. And in fact, I didn't hear Nazarbayev, Karimov or any other official or reporter say publicly: F-A-T T-H-I-G-H-S.

Nor for that matter did I hear then or since any public official abroad say of John McCain: "I looked into his eyes and saw three letters: O-L-D."

Which brings me to recent remarks by Clinton and McCain, both of whom maintain that above all else what sets them apart from their respective rivals in both main parties is gravitas on the foreign policy stage.

So how is it that we find Clinton saying of Vladimir Putin, as she did yesterday: "he's a KGB agent. By definition he doesn't have a soul." And McCain in a newspaper interview: "I looked into his eyes and saw three letters: a K, a G and a B."

Both of these knee-slappers were intended as swipes at President Bush for his oft-quoted 2001 remark about Putin, as kindly provided by the L.A. Times' Andrew Malcolm: "I looked the man in the eye. I found him to be very straightforward and trustworthy. We had a very good dialogue. I was able to get a sense of his soul; a man deeply committed to his country and the best interests of his country. And I appreciated so very much the frank dialogue."

Did Bush's remark reflect wisdom or good judgment? No. But neither does it require any to remark on someone's well-known former employment.

Putin's KGB background does affect Kremlin policy. The thrust of it is -- anything goes. In other words, set the goal, and use whatever means necessary to achieve it, which is a worrying approach to domestic and foreign policy.

But Putin is going to be around a long time, and the U.S. is going to have to find a common language with him. Rather than offering a serious approach, Clinton and McCain dived quite happily into the muck in a craven effort to capture the base.

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Question: Who's As Seductive As Gazprom? Answer: Schlumberger

What is Big Oil’s default answer to periods of trouble? Merge. It happened during the $10-a-barrel oil phases of the 1980s, and again in the 1990s. That’s why we’ve got Exxon Mobil, Chevron Texaco, ConocoPhillips and BP-Amoco-Arco.

So why would it happen now, with oil around $100 a barrel? Because that price camouflages the industry’s deep, long-term crisis. Majority state-owned companies like Gazprom, Aramco and Venezuela's Pdvsa own between 80% and 90% of the world’s known energy reserves, and are quite content to develop them themselves. For the Big Oil companies, there's no visible, long-term growth under the current business model.

Think Detroit.

That leaves Big Oil the traditional option of merging itself into the future. Two of the likeliest courtship targets I see are Russia’s natural gas giant Gazprom; and Schlumberger, one of the only long-term growth bets in the oil industry. Business Week features a long, thought-provoking piece by Stanley Reed this week on Schlumberger.

The Big Oil companies are vastly enlarging their natural gas component. That’s where Exxon’s growth is, for example -- in the Qatari natural gas fields. So a merger with Gazprom would be a natural, providing any company instant access to the world’s largest gas reserves. For Gazprom, merger with a Big Oil giant would provide instant fulfillment of its ambitions to be accepted in the West, and to be both an oil and gas company.

Both Big Oil and Russia are notoriously egotistical. Could either get down to a serious discussion, or are we talking Ali and Frazier? One wonders. But the likeliest partnership would be between Gazprom and Italy’s Eni, which have a deep and close relationship in various strategic pipelines.

As for Schlumberger, here’s a company that’s profiting from Big Oil's decision in the 1980s and 1990s to slim down by jettisoning its talented geologists, its drilling operations, and much of its research function. Schlumberger took that trend the opposite direction by bulking up with these very same capabilities.

Now, with the national oil companies disinterested in partnering but only in using western oil giants' technology, it’s companies like Schlumberger that are welcome in all these countries. So if a Big Oil company actually owned Schlumberger, that would be a good foot in the door.

Who would merge with Schlumberger is anyone’s guess -- Shell, BP, Exxon, Total, Chevron?

And what about a merger of the giants themselves – Schlumberger and Gazprom? The Business Week story says that Schlumberger’s Russia business is growing gangbusters, and that it expects Russia to be as important to its bottom line as its biggest current venue of work, the U.S.

Let's watch.

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A Precedent for Real Elections

Georgia's Mikheil Saakashvili appears to have won his big gamble today. An exit poll shows him winning re-election as president and averting a runoff with 53% of the vote, according to Bloomberg's Seb Alison.

Saakashvili stepped down as president when opposition protesters poured into the streets, demanding his resignation. He had been roundly criticized by the West for sending forces into the street to thump heads.

But if the results are confirmed in the actual count, it will validate a strategy that we've seen in no other country in the twelve members of the Commonwealth of Independent States save Ukraine.

That is -- a president who has stepped down and put himself to the voters in a more or less contested election.

I won't hold my breath waiting for others to follow, but Saakashvili has made a gratifying precedent.

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Behr-dee-mukh-uh-MEH'-duv in the White House

In the 1990s or earlier, some knuckle-head who couldn't get his (or her) arms around Central Asia nicknamed it the 'Stans as a catchall for all five of the previously little-known nations. At times the monniker even crossed the Caspian and embraced Azerbaijan, which while also a Muslim Turkic nation technically is part of the Caucasus. The stab at a cutism, however, I think helped ordinary outsiders digest these new nations as places distinct from, say, Russia. And the rest is history -- Kazakhstan's Nursultan Nazarbayev it seems only has to call to say he's in town to get an Oval Office visit. The same goes for Azerbaijan's Ilham Aliyev.

But what can you do with Gurbanguly Berdymukhamedov? There's simply no dignified way of abbreviating the ten-syllable name of Turkmenistan's new president. I even inquired of my wife, who as regular readers of this blog know is a Kazakh; she looked at me as though into the eyes of a child.

Which brings me to President Bush. Bush and his successor are simply going to have to bear down and learn to pronounce this man's name. Why? Because Turkmenistan, the possessor of the world's fourth-largest reserves of natural gas, is the improbable key to winning the current European pipeline war with Russia. Russia wants Turkmenistan's gas to nail down its dominance of the European natural gas market, while the U.S. and Europe want it to diversify Europe's natural gas supply away from Russia. Without Turkmenistan, neither can win.

So far, Russia is far in the lead, and a large part of the reason is courtship -- Russia's Vladimir Putin has met with Berdymukhamedov multiple times over the last year, even flying down to Turkmenistan. Yesterday, Putin seemed to win the fruits of his effort by signing a final agreement with Turkmenistan and Kazakhstan to carry their gas north through a new pipeline. In that part of the world, final is a fungible word, and in my opinion the game still goes on.

Meanwhile Bush has relegated Berdymukhamedov to a mere handshake at the United Nations. This is a blunder. Berdymukhamedov needs to find himself in the White House, over at Camp David, in America's embrace, getting a shoulder massage, a drink, a cigar.

Again, the West has something to learn from Putin.

The Pipeline War: As the CondiBoys Bicker, Putin Laps The West Again

Vladimir Putin has advanced again in the principal current theater of battle between the West and Russia -- the European pipeline war. His antagonists meanwhile are bickering over who will general their troops.

As wars go, this one is easy to figure out. It's purely business driven -- over who will dominate Europe's energy market -- and the spoils are political influence in Europe, where the votes are decisive on numerous issues vital to the West, in particular the U.S.

Russia, which currently controls about a third of Europe's oil and natural gas market, is seeking to enhance its dominance further by building large, new natural gas pipelines into northern and southern Europe.

On the other side, the European Union and the U.S. are trying to lessen Russian influence by building a competing set of natural gas pipelines into Europe.

The improbable key for both sides is that little can happen unless a single state -- Turkmenistan -- goes along. It possesses the world's fourth-largest reserves of natural gas, and it's these supplies that would make either side's pipeline strategy work.

So both the West and Russia have been assiduously courting this desert Central Asian nation, and its new president, Gurbangly Berdymukhamedov.

Except that Putin has been much more assiduous, and today that bore fruit as the leaders of Turkmenistan and also Kazakhstan signed a final agreement to build the first leg of Russia's new pipeline system. It would gather up the natural gas supplies of Turkmenistan and Kazakhstan, ship them north to Russia to be combined with Gazprom's volumes, then exported on to Europe at a much higher price (the profit to go to Russia alone).

I still think this is not a done deal. I've seen such seemingly concrete agreements silently disappear before. The real test is whether the pipeline lengths and bulldozers arrive on the spot, and welders begin working. As a smart friend posed the situation this morning, "Will Putin/Medvedev/Gazpromistan cough up the funds for it? Stay tuned." He was referring of course to Putin's probable successor, Dmitri Medvedev, and the character of today's Russia: The Gazprom State. The Russians aren't renown for willingness themselves to finance such projects.

As if to highlight this point, Berdymukhamedov himself didn't attend the signing ceremony -- which is notable since Putin and Kazakhstan's ultra-cautious Nursultan Nazarbayev did. He seems to be keeping the door slightly ajar for the Western route.

Still, the signs are not propitious for proponents of the Western route. While Putin has personally sat down with Berdymukhamedov numerous times, even flying down to Ashkabad to see him, President Bush gave him a mere photo op at the United Nations a couple of months ago.

Meanwhile, Bush's foreign policy team is in a catfight over who is going to lead the charge. Last month I reported that diplomatic warhorse Thomas Pickering was about to be named the new Caspian energy envoy. It's an inspired choice -- one of America's top two or three statesmen, Pickering brings undisputed gravitas wherever he goes. He exudes seriousness. His deputy is to be Steven Mann, a long-time ambassador and authority on the Caspian Sea.

But I'm told that Dan Fried, the U.S. assistant secretary of state for European affairs, isn't happy. He's intent on installing a senior deputy, Matt Bryza, in one of the two jobs. Bryza is deputy assistant secretary of state for European and Eurasian affairs. Fried and Bryza served together under Condoleeza Rice on the National Security Council before she became secretary of state.

Which brings me to CondiBoys. I realize I am out of it, having spent too much time in Central Asia, but until this week I had never heard this term. It apparently refers to the prevalence in key foreign policy positions of Rice's former mates at the NSC. Such proximity and loyalty to Rice, and not necessarily merit, is said to be key to promotion; loyalty to Bush is said to be helpful as well.

I happen to admire Dan Fried. I was told back in 2005 that he was singularly responsible for America's humane response to the massacre of hundreds of people in the Uzbekistan city of Andijan, apparently on the order of President Islam Karimov. Knowing that Karimov would force out the U.S. military base at the slightest hint of provocation, Fried pushed through a decision to fly out dozens of survivors who had fled to neighboring Kyrgyzstan, and eventually relocate many in the U.S. The U.S. did lose the base.

I also think that Bryza is a highly qualified Eurasian hand, probably the longest-serving Caspian expert in government. Plus he's a nice guy.

But Fried's campaign is absurd. If the CondiBoy description is true, neither Pickering nor Mann are Rice proteges. But you don't bench your first string quarterback if he's willing to play (Asian and European readers: You catch the drift). It seems to me that Fried and Bryza ought to get out of Pickering's and Mann's way so they can go to work.

They have a slog ahead. My friend Russell Zanca, an Uzbek export over at Northeastern Illinois University, just sent a comment on yesterday's posting about Putin containing the following notable remark:

"It's totally natural for the Cen Asians to go w/ Russia--all connections, work ethics, everything is well in place--um, not to mention geography. Meanwhile the U.S. organizes conferences and exhibitions in Ashgabat. As a Tashkent hat seller once told me, America's a good country, but Russia's much closer. "

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The Putin

Does Putinism require Vladimir Putin?

Putin announced today that he’s prepared to stand beside Dmitri Medvedev as his prime minister. He also says there’s no plan to transfer presidential powers to the prime minister's office.

I personally think that Putin will exercise much more power than any Russian prime minister in the post-Soviet period after the March elections. After all, he only said that there are no plans to change the law – Medvedev needn’t formally change any rules to allow his mentor to govern, for instance, the ultra-powerful military and intelligence services.

Yet I recall a conversation on my last trip to Moscow this year with a super-smart Russian analyst who predicted that Putin would step aside – there would simply be a shifting of seats as in musical chairs.

So let’s take Putin at his word and consider whether Putin is a requirement for the current system to go on.

The prevailing wisdom is yes. Putin failed to build up Russian stable institutions of governance during his almost eight-year tenure, but instead erected power around himself, the argument goes. In an editorial Saturday, my former newspaper, The Wall Street Journal, wrote, “Putinism hangs on a single man.”

That's an enormous categorical assumption. And I think it's wrong. Putin did build up an institution, and it’s hiding in plain sight: The people all around him, in public and behind closed doors, who run the Kremlin, Gazprom, Rosneft and the rest of the economy are that institution. Heirs to the fortunes wrested in part from Russia's powerful oligarchs of the 1990s, they aren't going anywhere.

Putin has just bequeathed one of the most powerful parts of that institution to Medvedev, and that's his political brain trust. Russia's Vedomosti newspaper says Medvedev's presidential campaign will be run by Putin chief of staff Sergei Sobyanin and possibly also his main strategist, prince of darkness Vladislav Surkov.

Yes, I think my Moscow friend had a point. Though it can seem otherwise, what's been built up in Russia is bigger than one man. Still, Putin will be around a long time. From close in, he can ensure that his successor is getting along well. He can reassure the many people counting on this institution for their fortunes. He can continue to help balance these forces. And he can step in forcefully should Medvedev unexpectedly falter.

Many people call Putin’s practices “Putinism.” So what shall we denote the institutional proper noun for those who practice Putinism?

I suggest The Putin.

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Becoming Like the Soviets - Part II

While researching The Oil and the Glory, an amusing story I heard again and again from the oilmen and diplomats who found themselves on the Caspian Sea was the ubiquity of eavesdropping. As they sought their lucrative deals or carried out statesmanship, they would find KGB microphones hidden behind portraits in their hotel rooms, and dug into the walls of their offices. Somehow the Azeris were able to surveil them even in five-star hotels all the way in London.

The Westerners described a resultant atmosphere that was paranoid, poisonous and wholly over the top.

Once, two Britons in Baku – BP’s Terry Adams and Ambassador Thomas Young – had something confidential to discuss, too confidential to risk being overheard indoors, and went for a rainy walk along the shoreline. Their privacy seemed assured — few cars or people were braving the nasty weather. Just then, a small Soviet-made Lada stopped fifty yards ahead of them, and a sheepdog with a big collar jumped out. The dog trailed after the men, making them suspicious. “When the dog’s tail would go up, Tom would say, ‘Careful, it must be transmitting,’” Adams told me. As bizarre as it sounded, the story took on a life of its own, and it helped convince many other oilmen that most if not all conversations were being recorded.

The foreigners began to treat it as a game. They would tailor their conversations with the express purpose of manipulating government negotiators. Some of the locals themselves tried to confound the bugging by dropping crumpled-up notes on the floor to caution foreign guests to watch their mouths.

Meanwhile the foreigners resorted to code names in hopes of confusing those listening in. One member of Azerbaijan’s loyal opposition was dubbed “Loyal Avis” by the Pennzoil team. Another who wore alligator shoes became “the Big Bopper,” and a third who owned a house near the president’s was known as “the Landlord.” A fourth who was in the local KGB was “the Lamp.”

As we see in today’s New York Times, the Bush administration set off on an eavesdropping campaign within two weeks of taking office, in February 2001. We can debate the merits of becoming like the Soviets, which I've blogged about previously.

But I can tell you after years of researching the KGB experience that in this respect it doesn’t work, at least not for long – shrewd listenees find a way to disguise their conversations, and conduct their genuine ones out of earshot.

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Fence-Sitting on the Caspian

Oil and the Glory readers are acquainted with irascible Valekh Aleskerov, Azerbaijan’s preening, blustery, table-pounding former chief oil negotiator. Aleskerov was in Washington this week for a conference run by my friend Zeyno Baran at the Hudson Institute.

I unfortunately wasn’t present, but heard that Aleskerov was his best, straight-talking self. I was particularly struck by a point on the second round of Pipeline Politics currently under way between Moscow, Europe and the U.S.

He noted that Azerbaijan’s courage was largely responsible for the diplomatic triumph in the game's first round, capped by last year’s completion of the Baku-Ceyhan oil pipeline linking the Caspian and Mediterranean seas. Azerbaijan President Heydar Aliyev opted to ignore Russian threats and, in partnership with Georgia’s Eduard Shevardnadze, spearhead the strategy of the thousand-mile, U.S.-backed line.

But Aleskerov was speaking in the context of the second-round battle between the West and Russia over who will control the resources of the Eastern side of the Caspian. Russia wants to take Kazakhstan’s and Turkmenistan’s natural gas north for onward shipment to Europe. But Europe and the U.S. are pressing a competing proposal to ship the gas west through a new trans-Caspian pipeline linking Turkmenistan to Turkey.

The Western proposal is prudent since going along with the Russian plan would mean isolation for Kazakhstan and Turkmenistan, which would then rely on a single buyer and shipper of this huge cash-earner.

The trans-Caspian idea is beset with indecisiveness and bungling from the Caspian all the way to Washington -- mainly in Europe and Washington -- but one of the problems is that neither Turkmenistan nor Kazakhstan have committed to the proposed line. And that’s the foremost step before anyone else can move. As Aleskerov put it: “Turkmenistan will not take risks like Azerbaijan took risks” with Baku-Ceyhan.

Yesterday, Kazakhstan unintentionally provided Aleskerov a coda.

For more than a decade, Kazakhstan’s president has played the cautious middle ground in Pipeline Politics. When Nursultan Nazarbayev is in front of Russian leaders, he says, We will ship our oil through Russia! Before Chinese leaders, it’s, China or bust! And with his Turkic brothers or the West, he’s a gushing fan of Baku-Ceyhan.

Yesterday was more of the same in the Kazakh capital of Astana. Standing with Turkish President Abdullah Gül, Nazarbayev was uncontainable. “Kazakh oil will be transported to the Baku-Tbilisi-Ceyhan pipeline,” he stated unequivocably.

Well, yes, because Chevron intends to ship a few hundred thousand barrels a day that way from its Tengiz oilfield. And so do the Italian-led developers of Kashagan, the mother of all Caspian oilfields, once they get on line in a few years.

But do the Kazakhs intend to ship any of their state-owned oil through the line? More to the point, would Nazarbayev ship oil or natural gas through trans-Caspian lines were they built?

As I write these questions, their absurdity becomes almost profound. Why would Nazarbayev not do so? And if there's no reason not to, why doesn’t Nazarbayev – the strongest current leader in the eight-nation Caucasus and Central Asia region – commit definite volumes to Baku-Ceyhan and a trans-Caspian line?

The answer is wrapped into Russia's own assumptions in its Pipeline Politics strategy. As Aleskerov put it so well, Vladimir Putin assumes that Turkmenistan and Kazakhstan "will not take risks like Azerbaijan took risks.”

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What if Russia's Communists Had Won in the 1990s?

I'm re-reading David Hoffman's "The Oligarchs," which is a riveting reminder of how, a little over a decade ago, the West was in a lather over the possibility that Russia's Communist Party could upend Boris Yeltsin. And if it did, privatization would be reversed, democracy would go out the window, and Russia would become more nationalist.

There must be a huge qualitative difference with how events in Russia have turned out, but I'm strained to define it.

This is important not as an ideological point, but in terms of the compromises made along the way to Vladimir Putin's rise to power in 1999.

When I've been to Moscow the last several months tracking the trajectory of events -- how we got from the Soviet collapse to Putinism -- experts there are fairly well agreed that the seeds were planted years ago.

Some say Russia lost its way back in 1993, when Yeltsin used tanks and Alpha troops to crush a revolt by hard-line rightists. Others say it was 1996, when the nation's independent journalists and billionaire oligarchs joined forces with articles, news broadcasts and cash that secured Yeltsin's re-election.

Whichever event was pivotal, here's their point: With these acts, Russia's ostensible democrats lost the moral high ground, showing their willingness to use any means to keep power, and thus legitimizing the same methods by others.

There are numerous examples of countries balking at the result of democracy: Algeria in 1992, when the military government canceled elections as it became clear that Islamists were going to win big; and Palestine two years ago, when the West rejected the triumph of Hamas.

The question being: Is the taint on democracy worth an intervention that may or may not alter the eventual outcome?

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

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

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

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

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

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

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

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

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

Sound familiar?

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

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

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Russia's New Prime Minister

As we've discussed on this blog for many months, the likeliest Russian power scenario going forward is that Vladimir Putin steps from the presidency into the prime minister's chair. Today, Putin's chosen successor, Dmitri Medvedev, made that scenario official.

There's some commentary out there that this is Putin's way of assuring a platform to return as president. But I think we've got the power structure as it will probably play out: Medvedev as president and Putin as prime minister, a position whose powers will be increased by the rubber-stamp parliament.

Here's why -- as soon as a person steps into the president's chair, the clock begins ticking. He's limited to two, four-year terms, and Putin is on record as opposing any change in that rule. The prime minister has no such limits, so Putin could remain Russia's paramount leader for life if he so wishes. And he -- and the Kremlin-bound clans that control Russia underneath him -- seem to so wish.

For both Russia and the world, this means the same current course: in Russia itself, a state-led economic boom with limited political freedoms; and outside the country, a Gazprom-led attempt to assert Russian influence.

America's Deal in Europe

I've been critical of the West's decision to allow Kazakhstan to chair Europe's chief political watchdog in the former Soviet bloc. I've puzzled over why Europe and the U.S. would choose to be led by a country that's never run a free election.

The issue is important because the group we're talking about, the Organization for Security and Cooperation in Europe, is the face of Western credibility on a number of issues. Compromise the name, compromise the credibility.

For the last few days, I've exchanged messages with people knowledgeable about the talks over the OSCE leadership. They've told me the political calculus -- at least within Washington -- in consenting.

And it's all about Russia, and the dealmaking-within-dealmaking that characterizes the most skillfully conducted diplomacy.

Here it is: Kazakhstan, its name tarnished because of a huge U.S. corruption case known as Kazakhgate, has been trying for years to polish its public image through a bid to chair the OSCE. But it was making little headway -- until, that is, Russia got behind it.

Why did Russia's Vladimir Putin back Kazakhstan? Because the assertive leader has his own political aims in Europe, one of which is to halt the West's presumption of the right to judge Russian human rights practices. (Putin has one point -- it's humiliating for a foreign power to slam your elections. But he could easily get around that by running a fair election.)

Specifically, Putin proposed to weaken the power of the OSCE's election observation arm, which has condemned about every single former Soviet election since the 1991 breakup. And, for cover, Putin got Kazakhstan to help spearhead the Russian proposal.

So what you had when the OSCE met in Madrid at the end of last month were two proposals on the table -- Kazakhstan's petition to chair the group, and Russia's to weaken its powers. And once Russia's lobbying was over, almost all the OSCE's 56 members were backing Kazakhstan to chair the OSCE in 2009.

So the U.S. did a deal. It got Kazakhstan to reverse itself on Russia's proposal and become effectively the leading opponent to weakening the OSCE's election activities. In exchange, Kazakhstan got the chair -- but a year later than it wanted, in 2010.

There's much bureaucratic gibberish on Kazakhstan's pledges to reform its election practices, meaningless clauses unless one believes that there's a chance that anyone apart from Nursultan Nazarbayev can be president and control Parliament.

In a nutshell, Europe caved to Russia on Kazakhstan, but not on the election watchdog issue.

That's a perilous calculus, but it reveals the reality of influence in Europe -- Russia's is growing, and Washington's shrinking.

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Putin Lays Out Russia's Future: The Gazprom-KGB State

For years, scholars, think tank commentators and journalists have been fond of a cute phrase to describe Russia: The KGB State. That's because of Vladimir Putin's KGB past, and the men who generally surround him.

But Putin's clever choice today of successor shows how he sees his country, and that's a hybrid -- what one might call the Gazprom-KGB State.

The levers of power will be distributed like this: Dmitri Medvedev keeps the money that's fueled Russia's roar back onto the world stage rolling in; and Putin keeps his hand in decision-making through his power base -- the FSB, the successor agency to the Soviet-era KGB.

Medvedev, who unless someone mightier than Putin intervenes will be Russia's next president come March, is chairman of the Russian natural gas giant. He's also of course Putin's deputy prime minister, but it's the Gazprom title that has demonstrated Putin's confidence in his 42-year-old protege.

Gazprom is the spearpoint of Russia's foreign policy. Through its control of natural gas pipelines, Gazprom is the instrument of Russian influence in its former colonies in Central Asia, the Caucasus, the Slavic states of Belarus and Ukraine, and even in the Baltics. And Gazprom is also Russia's lever of influence in Europe, where the company supplies 30% of the natural gas. That influence is likely to grow with the construction of new pipelines from Russia to Europe.

But what Medvedev doesn't have is links to the FSB, or any of the other security services. That means he's absolutely no threat to Putin's aspirations of holding on to power. If Putin had selected Medvedev's main rival, former KGB officer Sergei Ivanov, it would have sent a different message.

Last week, Putin proved that he's the country's most popular political figure in a massive sweep of parliamentary elections. Now he's moved to consolidate his position with the appointment of a milquetoast successor who seems likely to gladly stay on the economic side of power, and leave the rest to his patron.

We all assume that Putin plans not just to exert continued influence, but paramount power. Expect to hear more on that front.

China Replies: No New Sanctions Against Iran

China has replied to President Bush’s request for a tougher global stand against Iran. Sinopec, the Chinese company, today signed a $2 billion contract to develop a supergiant Iranian oilfield called Yadavaran.

The field is impressive, with an estimated 3 billion barrels of recoverable reserves. But the lousy terms show that Iran is still in the driver’s seat. Still insisting on fixed profit rather than the industry-standard big-risk-big-possible-reward formula, Iran gave Sinopec just a 14.98% rate of return.

In addition, production will be extremely slow. The contract calls for just 185,000 barrels a day. By comparison, the BP-led developers of next-door Azerbaijan's offshore – which contains just under twice Yadavaran's reserves – plan to ship 1.5 million barrels a day when it’s at maximum production in the next decade.

But the message is clear. The U.S. has lost the punch of its main claim against Iran – that it’s trying to build a nuclear bomb; a fresh intelligence estimate says that Tehran stopped doing so four years ago. So that has made it difficult for Bush to step up the isolation of Iran in what he asserts is the best way to get it to halt its enrichment of uranium.

China’s action shows that Iran will find ways around the western embargo.

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Cheetah Anyone?

If you want to communicate that you've arrived, some of your options are to drive a Ferrari, move to the Côte d'Azur, or perhaps walk around with an exotic animal, say a cheetah.

Or you can build a 67-story headquarters that resembles ... well ... it's obvious what Gazprom's new headquarters resembles.

Russia's Gazprom -- the world's biggest natural gas supplier, the breaker of nations, the scourge of Europe -- is erecting the building, designed by the U.K. architects RMJM, in St. Petersburg.

Can the Hermitage compete? UNESCO, the United Nations cultural arm, has complained that the building, well, diverges from the rest of the three-century-old city. But the city administration is aptly pugnacious. UNESCO "only came to our city because they smelled gas,” said Vera Dementyeva, who heads the city's Committee for the Preservation of Historical Monuments.

Don Quixote and Exxon's Contrarian Gamble

Does Exxon Mobil know something that the rest of Big Oil doesn't? Or is Exxon on a noble but ultimately quaint and quixotic quest for the old days?

Around the world, Big Oil has been knocked back on its heels by the assertiveness of state-owned oil companies that are both developing their own fields, and competing vigorously in auctions for the rights to oil and gas reserves elsewhere. The upshot is that major oil companies look to be on the verge of a long, unpleasant (for them) decline, with the result that some of them -- such as Italy's Eni -- are scrambling to adapt by forming alliances with the state-owned companies.

Exxon is not only refusing to play along with this scenario, but is in battle around the world in a claim that the prior rules hold.

In Kazakhstan, it was announced this week that Exxon is the lone holdout on an agreement to resume work on supergiant Kashagan, the largest new oilfield on the planet; the rest of the field's big partners -- Europe's Total, Shell and Eni -- have agreed to shave off a bit of their collective shares in the field so that Kazakhstan can become a full partner.

In Russia, too, Exxon is at odds with Moscow's insistence that the company sell natural gas from its giant Sakhalin-I development within Russia instead of at a higher price to China. Meanwhile, the rest of Big Oil has thrown in the towel and done compromise deals with Moscow.

And, as my friend Paul Sampson at Energy Intelligence notes in a story this week, the company is in conflict with Venezuela after abandoning participation in the Orinoco heavy oil project when Hugo Chavez demanded a larger piece of the pie. Exxon and Venezuela are in arbitration over how the company will be compensated. Meanwhile, Total, Chevron, BP and Norway's Statoil went along with Chavez's terms.

In a speech last month in Rome, Exxon Chairman Rex Tillerson said, "Some exporting and importing countries are losing sight of their interdependence. They are responding to the energy challenge by pursuing policies of resource nationalism."

Tillerson is betting that the current phase is a blip. Oil prices ultimately will moderate, his thinking goes, and state-owned companies in Venezuela, Russia, China and elsewhere will be back on Big Oil's doorstep.

Meanwhile, Exxon's strategy is to morph into more of a natural gas company. My former colleague Russell Gold at The Wall Street Journal reported during the summer that more than a third of Exxon's total proven reserves are in the Middle East and Asia; five years ago, Gold said, Exxon reported just a sixth of its reserves from that region. Exxon's biggest play on the planet is Qatar, which accounts for much of its growth.

It seems un-Exxonish to bet one's future on a single country or region. But it's not contrary to company culture to resist change. This is a company that until recently was the biggest corporate funder of the narrow club of greenhouse gas "scientist" deniers. Exxon reduced that funding when it became too public and too embarrassing.

It would be foolish to pass judgment on Exxon's strategy. But it does seem to be betting the house against the tide.

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Russia: Note to Presidential Candidates

This week's U.S. reversal on Iranian nuclear aims is a wake-up call on multiple fronts for those who will run American foreign policy for the next few years.

Among them is this: Vladimir Putin isn't a simple gadfly. Instead, he's one of the most important leaders the U.S. can cultivate over the next few years. Why? Because he's engaging and challenging the U.S. on issues that both countries care about, and happens to get it right -- and the U.S. wrong -- at important times.

As we learned this week, Iran is one. For years the U.S. tried to stampede him into supporting ever-escalating sanctions, leading to possible war, against Iran. But he resisted, asserting that President Bush's claims about Iran's nuclear weapons capability were overblown, and according to the new U.S. intelligence estimate it is Putin's judgment that was correct.

The new Iran intelligence highlights another needed correction: Putin in fact isn't inaccurate -- nor belligerent -- when he asserts that the U.S. presumes to know the only way on foreign policy.

U.S. policy on Russia currently amounts to this: You hurt my feelings.

It would be better to focus on issues, and the main one is energy, the foundation of Russian -- and Putin's -- power, how he's asserting Moscow's prerogatives in Europe and elsewhere.

As readers of this blog know, I think that one of the most potent instruments of power in Europe today is control of the flow of oil and natural gas. Putin has learned the lesson of the momentous U.S. foreign policy triumph last year with the completion of the Baku-Ceyhan oil pipeline and is conducting his own, much more ambitious pipeline policy.

Putin's strategy is market-oriented -- to cement and increase Russia's current control of 30% of Europe's natural gas market. It so happens, in my opinion, that that aim is incompatible with European and U.S. interests in a more diversified natural gas supply so that no one can dictate terms.

The U.S. is attempting to counter the Russian pipeline thrust, but is late to the game. U.S. energy bureaucrats led by Steven Mann are meeting in Sofia tomorrow and Friday to talk over how the U.S. can polish its strategy, and it'll be interesting to know the outcome.

I personally think that the new intelligence assessment on Iran -- like the previous one -- sounds too smugly certain. Anyone who has read Tim Weiner's excellent Legacy of Ashes can see that the intelligence business is barely manageable at best, like herding cats as the saying goes. But the fact that the intelligence services did not have rock-hard evidence before on Iran's intentions gives little comfort to those reading this week's abrupt, contrary assertions.

And it's equally discomfiting to those who have watched American policy on Russia amount to finger-pointing.

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Notes on the Pipeline War: Amateur Hour in Washington and Europe

Note: I had an interesting interview today with David Inge of WILL Radio at the University of Illinois. Lots of history, Russia, Iran and China.

Now to pipelines. I’ve been exchanging emails with an oilman friend about a long natural gas pipeline championed by the United States and Europe to meet Vladimir Putin’s petro-thrust into Europe. This friend, who chooses to correspond privately, thinks the West’s handling of the pipeline, called Nabucco, has been amateurish at best. And I must say after going over it with him that he makes a strong case.

As background, this clumsily named, 2,000-mile-long pipeline would start in Turkey and terminate in Austria. It would transport natural gas from the Central Asian republics of Turkmenistan, Kazakhstan and Uzbekistan, providing them a financial channel independent of current monopoly-buyer Russia. It would also help to diversify the natural gas supply of Europe, which relies on Russia for some 30% of its gas.

Nabucco is the West’s response to three big Russian-planned pipelines that instead would channel Central Asian gas north to Russia, for onward export to Europe through the planned Nord Stream and South Stream pipelines. The pipelines would advance a shrewd Russian market strategy to cement and build on its domination of Europe's energy supply.

Russia is far advanced in the contest, but the West thinks it can catch up. As readers of this blog know, the Bush administration is about to name Thomas Pickering, one of Washington’s most seasoned statesmen, to head the diplomatic effort in a newly created office within the State Department.

But my friend argues that, not only would Pickering not be poised to push Nabucco over the finish line, the West is currently “not even in the starting gate.”

Putting aside for the moment that the Central Asians have yet to make a necessary commitment to the line, Nabucco’s advocates have to date failed to perform a detailed economic analysis of the proposed line. And because they also have no convincing engineering study of the line, along with a detailed, country-by-country understanding of how big or small the role of each player in the complex line would be, the West ends up at risk of being manipulated by those with a vested interest in its construction.

In the 1990s, when the U.S. got behind the Baku-Ceyhan pipeline – the million-barrel-a-day line connecting Baku with the Turkish Mediterranean – it corralled support money from organizations like the Export-Import Bank and the European Bank for Reconstruction and Development. No equivalent effort has accompanied the campaign for Nabucco.

So is the West serious? If so, my friend says it might move beyond a pose and create a program. He makes sense.

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NY Times: Wrongheaded on Pakistan

Wrong Way
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I am no basher of The New York Times editorial page, but its ostensibly pro-democratic position today on Pakistan would be amusing were it not so sad.

This issue -- whither Pakistan -- is central to the themes of democracy, security and oil usually discussed in the context of the Caspian region and Russia on this blog.

The Times supports a coalition of former prime ministers Benazir Bhutto and Nawaz Sharif as progress toward democracy. The newspaper supposes that this dual political front would be more democratic than Gen. Pervez Musharraf. To borrow one of The Times' own phrases, this is preposterously presumed. If the newspaper backed the head of the country's lawyers movement -- Aitzaz Ahsan -- it would be on far more solid ground, in my opinion. Instead, it reaches for Pakistan's tired, failed past.

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How to Survive in the New World of Big Oil

Italy’s Eni continues to pioneer a successful path to survival in Big Oil’s treacherous new world – get in bed, don’t compete, with the world’s state-owned oil companies.

Eni’s flexible strategy has already made it Big Oil’s most successful company in both Russia and Kazakhstan. Today, it announced a fresh partnership with Russia’s Gazprom – to build a $14 billion natural gas pipeline between Russia and Europe. The pipeline directly challenges U.S. and European Union policy.

Called South Stream, the pipeline would ship Central Asian and Russian natural gas into southern Europe. It’s part of a three-pronged Russian strategy to deepen its dominance of Europe’s natural gas market. Russia is also building a natural gas pipeline called Nord Stream, which would serve northern Europe. A third line would feed cheap Turkmenistan and Kazakhstan natural gas into Nord Stream and South Stream.

Eni hopes to parlay its cooperation with Gazprom into natural gas development deals in Russia, which has recently sharply resisted such relationships with western oil companies.

Washington and the EU are fighting to blunt the market impact of the trio of Russian lines. They are doing so by championing rival natural gas lines from Turkmenistan into Europe. But, as today’s announcement shows, Russia is more advanced in the contest.

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