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Putin's Wealth

noreply@blogger.com (Steve) — Fri, 16 May 2008 13:16:00 +0000

The FT's Catherine Belton and Neil Buckley weigh in with an impressive story that attempts to penetrate the question of Vladimir Putin's personal fortune. This enterprise -- the documentation of what Putin is worth -- will require a long, ongoing and determined effort. But Belton and Buckley try to peal away a layer.

The piece involves Gunvor, the Swiss-based oil trading company that has miraculously (Hey, we're just really good businessmen) grabbed control of a third of Russia's oil exports. One public owner of Gunvor is Gennady Timchenko, a reclusive and long-time buddy of Putin's. The FT links Timchenko to Surgutneftegas, which Russian polical analyst Stanislav Belkovsky has asserted to many of us for over a year partly belongs to Putin. As the FT reports, when Bill Browder -- until a couple years ago Russia's biggest foreign cheerleader as the head of Hermitage Capital Management -- sought to find out who really owned Surgutneftegas, he suddenly could no longer get a visa.

Putin swats away suggestions regarding his personal share of Russia's economic boom. But those who have hung around the former Soviet Union for awhile know that his dismissals are not exceedingly convincing. Personal wealth is a prerequisite to rule in this rough neighborhood; one simply is not taken seriously among former Soviet power brokers unless one has one's own, enormous cash stash. But the hard evidence is almost impossible to obtain; I think the only case of such proof has involved Kazakhstan's Nursultan Nazarbayev, and that emerged only after a perfect storm of bungling.

The trouble at BP: For some time, it has appeared that BP could lose control of its main asset in Russia, its share of TNK-BP. The thinking has been that Gazprom is intent on grabbing control of TNK-BP, by either forcing out BP or its Russian partners. The arrival of tax inspectors at TNK-BP's offices in recent months seemed to buttress this view, given that that's precisely what signaled trouble for Shell before it was forced to hand over control of the gigantic Sakhalin-II natural gas field to Gazprom.

But my former colleagues Guy Chazan and Greg White at The Wall Street Journal have a piece that embraces a contrarian view: that Gazprom isn't the villain; the partners themselves are in a catfight. Igor Yurgens, the adviser to President Dmitri Medvedev, told me the same thing in a phone chat a couple of weeks ago.

Robert Amsterdam does a good job of explaining the probable bigger picture -- perhaps there is infighting; but Gazprom is likely still pulling the strings behind the scenes. This Reuters piece about a phantom company suddenly suing TNK-BP is more evidence of this.

Gazprom's goal -- as expressed by Putin himself -- is to obtain energy assets overseas. In order to land a traditional oil deal in Russia today -- one that involves ownership of actual oil or natural gas reserves -- one has to give up similar assets abroad. BP is trying to work such a deal with Gazprom, and the trouble at TNK-BP seems a piece of that negotiation.

Photo: Eclectic Al

Rights: Creative Commons

Accumulating Shoes

noreply@blogger.com (Steve) — Tue, 13 May 2008 13:41:00 +0000

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

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

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

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

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

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

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

Photo: Joe Shlabotnik

Rights: Creative Commons

Will No One Have Sympathy for a Fallen Middleman?

noreply@blogger.com (Steve) — Sat, 10 May 2008 18:59:00 +0000

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

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

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

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

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

Meet the New Boss

noreply@blogger.com (Steve) — Wed, 07 May 2008 13:37:00 +0000

Much ink has been spilled in recent months parsing the statements of Russia's new president, Dmitri Medvedev, with the aim of deciphering whether he will be more democratic than Vladimir Putin.

The result has been in the eye of the beholder -- those wishing for greater political participation from below have seen a suppressed democrat; others have said that, regardless of Medvedev's own preferences, he will be strait-jacketed by the presence of his predecessor in the prime minister's suite. No one, as far as I can tell, has predicted a traditional, strong Russian leader in the making.

History is replete with examples of seemingly meek gentlemen morphing into full-throated autocrats (among them Pakistan's Zia ul-Haq, Egypt's Hosni Mubarak, and further back, Kaiser Wilhelm II). So such a future cannot be ruled out in Medvedev's case.

But, at risk of reading someone else's mind, I think that Putin did not select his protege with that history bothering him; rather it was precisely because of that precedence that he passed over Medvedev's chief rival, Sergei Ivanov, who as a former spy himself has many friends in Russia's powerful security services. Putin selected Medvedev, a former law professor, for his loyalty, and his belief that Medvedev would be the least troubled by Putin's continued strong role in political affairs.

For fans of Robert Caro's magisterial The Power Broker, Putin wants to be Russia's Robert Moses. He wants to have long service, calling the shots regardless of who sits in the Kremlin.

Do not look for Russia to democratize in any western sense, not for some time in any case. Rather, Medvedev's role will be largely economic -- attempting to broaden the boom away from energy.

On foreign policy, to the degree he has any latitude, he seems likely to speak more softly. But the Gazprom-led economic march into Europe will continue. More worryingly at the moment, do not expect any precipitate withdrawal of the chin-out Russian activities in Georgia.

Photo: World Economic Forum
Rights: Creative Commons

Green's Moment of Truth?

noreply@blogger.com (Steve) — Tue, 06 May 2008 12:10:00 +0000

Today's breathtaking surge of oil prices through $120 a barrel and on toward $121 underscores a possible shift in the U.S. -- Americans may be finally recovering from their seduction with the road.

An insightful piece by my Business Week colleague Christopher Palmeri details how America's demand for oil appears to be dropping. They are traveling less, and when they do, doing so in smaller vehicles -- they are buying more compact cars, and fewer SUVs.

Caution is in order, since the country is in recession, and these statistics are for a single quarter. Yet the tightness in global oil supplies isn't likely to lift -- Russian production is stuck at about 10 million barrels a day and dropping, and the Saudis are probably at or near their own production peak, according to a piece today by my former Wall Street Journal colleague Neil King. The only big unknown is whether Iraq and Iran come on the market with large new supplies. But even if they do, what are we talking about -- another collective 4 million barrels a day? Five million barrels tops? That's not much of a global cushion, and not sufficient to relieve the tightness as Asian demand continues to grow. Arjun Murti over at Goldman Sachs says that oil may soar to $150 to $200 a barrel in the next couple of years, according to a piece by Bloomberg's Nesa Subrahmaniyan.

Goldman has been prescient on oil prices. And the stars do seem lined up for high commodity prices of all types. But if demand truly is dropping in the biggest gas-guzzling country on the planet, there is reason to give some credence to the opposite outcome -- that the price will stabilize, and even drop. Not too much. Perhaps a bargain $100 a barrel? A firesale $90?

Yet that could be sufficient to trigger an era of proving time for the conviction of investors and innovators in renewable fuels. In an excellent contrarian piece, my Business Week colleague John Carey says that corn ethanol has wrongly suffered a black eye over its impact on the food supply. Corn ethanol isn't as much a villain as it's made out to be.

But that's irrelevant to the current environment. What's driven billions of dollars into venture capital has been the runup in oil prices. As long as prices keep rising, that money will probably keep flowing (although probably not into corn ethanol). But if the price surge slows, or reverses, look for an impact in the constellation of renewable companies.

Which venture capitalists have the conviction and stomach to put more into technologies many of whose genuine value won't be known for years and years? And which technology will they decide has the right stuff to succeed in the long term? The air is likely to go out of some of the fledgling companies' perceived value.

Turkmen Subjected to More Sanity: My friend David Stern, the New York Times writer in Central Asia, writes that Turkmenistan leader Gurbanguly Berdymukhamedov is dismantling yet another vestige of the deceased buffoon he succeeded. After having reinstated full schooling for children, and reopened local circuses, libraries and even the ballet, Berdymukhamedov is removing the Arch of Neutrality, a revolving statue of his predecessor, Saparmurat Niyazov, from the center of the capital of Ashkabad. Perhaps next he will start issuing visas to foreigners.

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Rights: Creative Commons

Georgia: An Exercise in Image-Building

noreply@blogger.com (Steve) — Thu, 01 May 2008 15:17:00 +0000

Six days before Dmitri Medvedev takes over the helm of Russia, Vladimir Putin has put the country on a war-footing with its favorite punching bag, the neighboring nation of Georgia. Putin has shifted troops to the seaside Georgian region of Abkhazia -- just in case, Moscow says, Georgia mounts a military attack against the separatist region.

As readers recall, Georgia and Abkhazia fought a brutal war during the early 1990s that left the two divided.

Igor Yurgens, a brainy and urbane Medvedev adviser who is making the rounds in Washington, London and Paris, told me in a phone chat yesterday that Moscow "will not use military force" in order to absorb Abkhazia, whose citizens already have been given Russian citizenship.

Yet Putin is still in a lather over the West's decision to recognize Kosovo's independence from Serbia, and this most recent flareup of tensions with Georgia seems to me of a different order from the countless previous flareups between the two over the last seventeen years. Putin is sticking his chin out.

NATO ambassadors said yesterday that the move "risks undermining stability." But Yurgens doesn't seem swayed. "We are not going to be pushed and bullied on this question after Kosovo, that's for sure," he told me.

What is Russia's move really all about? Surely it's not concern over Abkhaz security -- a Georgian military attack in order to bring the region back into the Georgian fold verges on ludicrous, mainly since Georgian President Mikheil Saakashvili knows he would lose, either to the Abkhaz themselves or a predictable Russian counter-offensive.

Is Putin simply demonstrating yet again that Russia won't be pushed around? Is he bestowing an image-building conflict on his successor, in the way that Chechnya built up Putin's own nationalist credentials when he took power in 1999 with a popularity rating of 2%? Perhaps Putin simply couldn't resist lest anyone forget what he has done for Russia's feeling of well-being? According to Itar-Tass, he is leaving office with an almost 85% approval rating.

When pressed on its general foreign policy, Russia says the West is mired in Cold War thinking, and that its strategy is straightforward and not political. If that's true, one wonders why Putin been unable to strike win-win deals with Georgia, Ukraine and the Baltics.

The prevailing wisdom is that nothing will change under Medvedev, whom experts think will keep the wheel straight and hope that things turn out as well for him as they did for Putin. Nothing Medvedev has said seems to argue otherwise.

Photo: Argenberg
Rights: Creative Commons

Book Note

noreply@blogger.com (Steve) — Wed, 30 Apr 2008 02:31:00 +0000

The cover is out of the design shop for the new book, due out this fall.

Notice to Tinkerers: X-Prize Throws $100 Million Into the Biofuels Pot

noreply@blogger.com (Steve) — Tue, 29 Apr 2008 11:45:00 +0000

The folks who jolted space travel, human-genome sequencing and high-mileage vehicles are now looking to stir up the transition away from fossil fuels. The X-Prize Foundation is going to offer up to $100 million in a cluster of awards for transformative innovation in biofuels, electricity storage and transmission, and other clean technology.

I spoke both to X-Prize CEO Peter Diamandis and foundation President Tom Vander Ark for a story on the new prizes for a piece in today's BusinessWeek on-line.

One item not in the piece is how Vander Ark -- who worked previously on education in Bill and Melinda Gates' foundation -- is helping to take the X Prize in the same direction, meaning toward the developing world. These new energy prizes are somewhat geared to bringing cheap electricity, water and broadband to small villages in an effort to spur their economies. In the biofuels component, too, there's a requirement that the technology be easily transportable, which would make it useable in the developing world. Next, the X-Prizes are going directly into medicine and education, the Gates Foundation's forte.

I also asked Diamandis what it takes to be an X-man, or X-woman, as it were -- what is the right stuff to win one of the cachet-filled $10 million prizes?

Brilliance helps, of course, Diamandis said, but "I'm putting my money on tenacity and perseverance. It's asking over and over and over again for capital, refusing to take no for an answer. It's tenacity combined with passion."

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Rights: Creative Commons

Latest Score in Love versus War

noreply@blogger.com (Steve) — Wed, 23 Apr 2008 14:50:00 +0000

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

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

Venezuela

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

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

Photo: Chrispitality
Rights: Creative Commons

Presidential Candidates on Russia

noreply@blogger.com (Steve) — Tue, 22 Apr 2008 12:37:00 +0000

With Iraq sucking much of the air out of the room, the former Soviet Union and Russia in particular have gotten little attention from the U.S. presidential candidates. The notable exception has been GOP nominee John McCain, who threatened with Bush-like chest-thumping to expel Russia from the G-8, and sophomorically described Vladimir Putin's eyes as containing a "K a G and a B."

Matt Siegel at The Moscow Times weighs in today with a piece in which he interviews McCain's Russia expert, Stephen Biegun, a vice president at Ford Motor and a veteran of the current President Bush's foreign policy team; and Michael McFaul, who is Barack Obama's Russia specialist and acting director of the Institute for International Studies at Stanford University. It's worth reading, in addition to this discussion by a panel of specialists gathered together by Johnson's List a couple of weeks ago.

Both of the Democratic candidates make the point that it's unnecessary to rile Russia at the moment by insisting on a missile-defense shield in Poland and the Czech Republic, when there is no evidence that the technology works. McCain supports installation of the shield regardless.

Much also is made of Putin's crackdown on rival voices.

None of the candidates has said a word as far as I can tell about a serious, omnibus approach to Eurasian energy security stretching from Central Asia into western Europe. As readers of this blog know, Putin -- and by extension Dmitri Medvedev -- have treated this as a paramount issue, while Washington has been looking the other way to Iraq.

One amusing aspect of the foreign policy debate that has taken place is hoopla among some in the expert community over Obama's reliance on Zbigniew Brzezinski, the Carter-era national security adviser, as a chief foreign policy expert. These experts see Brzezinski as a relic of the Cold War. Perhaps such younger specialists see themselves as more authoritative. But a reading of his writing over the last decade and a half shows Brzezinski proving himself again and again as one of the most realistic and wise hands on the former Soviet Union. He does so again here in the current issue of The Washington Quarterly.

At core is a subjective issue that will not be settled to anyone's satisfaction -- is Russia a normal country, meaning should it be treated the way one would approach, say, France? Brzezinski would be on the reasonable side of those who reply 'no,' at least at the moment. Those for whom the answer seems to be yes seem to include Stephen Kotkin of Princeton and Anatol Lieven of King's College in London.

Russia's Anti-Virus Champion

noreply@blogger.com (Steve) — Wed, 09 Apr 2008 18:26:00 +0000

When I bought my laptop a year ago, the sales guy suggested I install Internet security software I hadn't heard of from a company called Kaspersky. I'd used McAfee for years, but I also knew from my time in the former Soviet Union that some of the most virulent viruses, and the best virus killers, came out of Moscow. So I did.

I like Kaspersky. I've had no trouble (as far as I know at least) over the last year. And I see in a dog-and-pony show put on by the company in January that its co-founder, 42-year-old Yevgeni Kaspersky, is a fairly ambitious and colorful guy.

But, if my latest experience is any indicator, the company is having some growing pains. When I tried to renew the service last week, I couldn't get Kaspersky to respond to two emails. When I turned to the phone, I was on hold for almost an hour before I gave up. I finally got a response when emailed the media contact, saying that I wanted to do this -- write up a piece for the blog. Rapidly I was contacted not by one, but two Kaspersky people, and provided precisely the right link to get renewed. Kaspersky's representative claimed to have responded to one of the emails and not to have received the second. Whatever. Kaspersky isn't the only company with a communications problem.

I did renew. It's good software.

Photo: David Orban
Rights: Creative Commons

Job Change

noreply@blogger.com (Steve) — Tue, 08 Apr 2008 20:10:00 +0000

Judging by the emails I'm receiving, the word is out, so here is an official announcement: I'm shifting over to Business Week. I'll be its Washington-based foreign affairs writer, and will additionally continue to write about energy, although on a larger canvas and not only on the former Soviet Union. Story ideas are welcome.

The blog will continue. There is serious talk about absorbing it into Business Week's on-line presence, and I'll keep you informed if and when that happens.

The Children of the Autocrats

noreply@blogger.com (Steve) — Mon, 07 Apr 2008 17:24:00 +0000

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

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

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

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

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

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

Let’s be friends, Guys

noreply@blogger.com (Steve) — Fri, 04 Apr 2008 22:47:00 +0000

Vladimir Putin's remark just about sums up the NATO Summit that ended today in Bucharest. "Let’s be friends, guys, and be frank and open,” he told reporters on the topic of whether a new cold war was in the making. The sentiment will carry over into Sunday's meeting between Putin and President Bush in the Black Sea resort of Sochi, where the two leaders will sign an affable "Strategic Framework" agreement.

As those familiar with the ways of Moscow know, such empty, toothless pacts -- known as the "protocol" in that part of the world -- are what companies and countries sign when they can't agree to anything conclusive.

In short, the NATO gathering ended with the U.S. attempting to dress up a setback against Putin as by and large a show of unity by Europe.

Bush put much on the line by announcing that he would seek to push forward Ukraine's and Georgia's bids to join NATO. But what did he walk away with? European agreement to a missile defense system that doesn't work. European agreement to add troops to a conflict -- Afghanistan -- about whose merits there's almost no disagreement anywhere in the world.

On the question of Ukraine and Georgia, Europe buckled, at least for now, to Putin's objections to their obtaining so-called MAP -- or Membership Action Plan -- status.

So Putin closed out another week of diplomatic triumphs. There will be no advance for now in NATO's expansion to the Russian border. And, with Bush's appointment of a harmless old family friend this week as Eurasian energy czar, there will be no serious challenge to Putin's policy of dominating European energy.

As for the Strategic Framework agreement to be signed Sunday, it's Putin's stated sentiment on paper -- gosh, can't we be friends?

I personally think that Georgia and probably Ukraine will eventually join NATO as full members. But it could be going more smoothly.

For a solid commentary on the spectacle from the perspective of Germany, this piece by Ulrich Speck at RFE-RL is highly recommended reading.

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Rights: Creative Commons

Baku oil legend Nikolai Baibakov Dies at 98

noreply@blogger.com (Steve) — Wed, 02 Apr 2008 15:51:00 +0000

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

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

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

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

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

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

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

C. Boyden Gray: Ho-hum on the Caspian

noreply@blogger.com (Steve) — Tue, 01 Apr 2008 19:06:00 +0000

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

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

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

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

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

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

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

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

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

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

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

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

In other words, this is a dull spearhead.

Showdown in Bucharest

noreply@blogger.com (Steve) — Tue, 01 Apr 2008 17:43:00 +0000

After the spectacle and fireworks of recent years, we're about to see the latest picture of the balance of power in Russia-West relations. The venue will be the NATO summit that begins tomorrow in Bucharest. The issue is whether to advance Georgia and Ukraine's applications to join the military alliance.

The two former Soviet countries want to push forward their status to what’s called MAP – a Membership Action Plan. True membership would come down the road, once they meet the various necessary qualifications. France and Germany oppose moving to a MAP for the two. "France will not give its green light to the entry of Ukraine and Georgia," French Prime Minister Francois Fillon told France-Inter radio. "We are opposed to Georgia and Ukraine's entry because we think that it is not the correct response to the balance of power in Europe, and between Europe and Russia."

Stephen Fidler and Stefan Wagstyl of the Financial Times rang up Georgia's Mikheil Saakashvili, who has a reputation as a hothead, but sounds eminently sensible on this issue. "No matter what some Europeans might be thinking, it's basically giving [Russia] direct veto rights, because that's how they'll perceive it," Saakashvili told the FT.

Saakashvili has that right. Russia’s foreign minister, Sergei Lavrov, suggests that Georgia will use NATO membership to force the breakaway regions of Abkhazia and South Ossetia back into the Georgian fold. This is a red herring – it’s absurd to suggest that NATO would commit troops to crushing Abkhazian or South Ossetian politics. It can't even raise sufficient troops for Afghanistan.

Instead, the issue is simple -- Vladimir Putin wishing to demonstrate Russia’s influence now, and to retain its pressure points on its former colonies in the future.

Saakashvili has done smart political spadework. He has offered power-sharing to Abkhazia, and 500 Georgian troops to Afghanistan. The latter move at minimum could quiet France’s objections.

The ultimate decision will indicate whether Putin has at last succeeded in shifting the balance of power more toward Russia's direction.

Photo: neurmadic aesthetic
Rights: Creative Commons

Guest columnist: Lawrence Sheets on Uranium Smuggling

noreply@blogger.com (Steve) — Wed, 12 Mar 2008 14:24:00 +0000

Apologies to O and G readers for the long absence. I've been trying to finish up the Russia book. That's no excuse, so here we go.

We have as a guest Lawrence Scott Sheets, who will be taking any questions on a piece he's got on uranium smuggling in next month's Atlantic magazine, called "A Smuggler's Story." The story isn't posted yet, but Atlantic has put up an interview with Sheets on its web site. The theme is the back story to a scoop that Sheets broke in The New York Times a few months back about a hair-raising scheme to sell weapons-grade uranium from former Soviet Georgia. This is a story of the highest order.

I've known Sheets for some fifteen years, since both of us were Tbilisi-based correspondents covering the Georgian-Abkhazian civil war, he for Reuters, and I for Newsweek and The Washington Post. At a time and place when there simply was no infrastructure -- everything in the Caucasus seemed to have fallen apart -- Sheets demonstrated a superlative ability to make his bureau work. He went on to become NPR's Moscow correspondent, and is now working on what appears likely to be a classic, book-length account of his couple of decades in the former Soviet Union.

Here is how The Atlantic leads into the interview with Sheets:

Uranium on the Loose

When the Soviet Union finally collapsed in December 1991, the United States could claim victory in the Cold War, Francis Fukuyama could declare the end of history, and some 280 million people could look forward to a liberated future. But in fact the Soviet Union left its 15 successor states to navigate their own way to democracy and a market economy. And with some 22,000 tactical nuclear weapons—along with perhaps 1,200 tons of bomb-grade uranium—scattered under uncertain ownership and questionable supervision, the securing of the world’s largest arsenal of nuclear materials became a matter of pressing concern.

Over the past decade and half, with extensive help from the United States, Russia has tried to lock down this atomic detritus, at great expense. But the task is a massive one, and as of 2008, the two nations face nuclear concerns that scarcely registered during the upheaval of the 1990s. Seven years after 9/11, Russia has become something of a terrorists’ nirvana—with 12,500 miles of borders, a military so corrupt its members have sold weapons to their battlefield enemies, and vast networks of poorly safeguarded nuclear facilities.

Russia is likely the only place in the world where a man like Oleg Khintsagov, an ordinary, destitute, and dimwitted hustler, can pick up weapons-grade uranium and try to hawk it from his pockets. Khintsagov, along with two other smugglers of similar means and aptitude—Garik Dadayan and Tamaz Dimitradze—are the subject of “A Smuggler’s Story,” Lawrence Scott Sheets’ piece in the April issue of The Atlantic. To a man, the couriers Sheets describes are poorly prepared for their missions, yet they have their hands on potentially catastrophic atomic ingredients. The story Sheets tells is of a society in collapse in the face of separatist anxieties, ethnic animosities, and ambiguous borders—and of impoverished people seeking to feed their families in a radioactive land.

Read interview

Guest Column: Khanna Explains The Second World

noreply@blogger.com (Steve) — Tue, 04 Mar 2008 07:15:00 +0000

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

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

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

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

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

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

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

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

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

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

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

The Why's of Pipeline Politics

noreply@blogger.com (Steve) — Mon, 03 Mar 2008 16:06:00 +0000

One thing highly unlikely to change under Dmitri Medvedev is Moscow's hard-line energy policy. Indeed, one sometimes gets the impression that Russia wants the West to build pipelines that go around it.

As evidence, take a look at two disputes: Chevron's long-frustrated efforts to ship more oil through a pipeline that technically was built exclusively for its use; and Gazprom's cutoff of natural gas today to Ukraine.

The California company is nothing if not patient and persistent. It's hard to believe that its travails with Moscow have gone on for almost two decades, but it was 1989 when the California-based company first laid eyes on the Tengiz oilfield. The western Kazakhstan field, right next to the Caspian, contains 10 billion barrels of recoverable oil reserves or more, a considerable volume in an industry that regards a 1-billion-barrel field as a supergiant. The final contract awarding Chevron 50% of the field was signed in 1993.

Since then, it's been one stumbling block after another from Russia, which has seen it in its interest to keep Tengiz bottled up. It took eight years before a long-planned dedicated pipeline from the field -- known as CPC -- finally was running. But, while CPC has been producing 320,000 barrels of oil a day, Chevron has always seen Tengiz as at minimum a 700,000-barrel-a-day field, and more reasonably capable of 1 million barrels a day of exports. As of later this year, Chevron is ready for a mid-range production increase to 540,000 barrels a day.

Only, that would require an expansion of CPC, and Russia has blocked it. As the years have gone by, Transneft, which does the negotiating for the Kremlin, has seemed always to have a new demand. When that's met, there's been another. This time, it seems to want Chevron and its partners to finance another pipeline -- a line connecting the Black and Mediterranean seas overland from Bulgaria to Greece.

This isn't public, but Transneft is currently circulating a compromise. People who have received the Transneft memo tell me that Russia is willing to allow Chevron and its partners to raise exports through a process called "de-bottlenecking," which basically means getting the kinks out. The companies could modernize existing pumping stations, but add no new ones. Exports would rise from the current 28 million tons a year to around 38 million tons; that's far less than the 67 million tons a year that the companies seek.

There's no word on whether Chevron and its partners will accept -- they have 30 days to answer -- but it seems unlikely they'll reject it. But what is the ultimate impact of Russia's intransigence? Well, what happens when water is blocked from one drain? It seeks an outlet elsewhere. So look for a greater push for a trans-Caspian oil pipeline from Central Asia to Baku.

Meanwhile, Russia's Gazprom today cut off some 35% of its natural gas supplies for Ukraine. It says its neighbor owes some $600 million for exports this year. Ukraine Prime Minister Yulia Timoshenko disputes the figures. Given that the accounting books are closed to the public, and are disputed by those to whom they are open, there's no way of knowing for sure.

But, while they talk, both Gazprom and Ukraine say their dispute won't again disrupt supplies to Europe (Europe receives more than 30% of its natural gas from Russia, and most of that flows through Ukraine), as they did in 2006. I wouldn't bet on that. Jitteriness in Europe is Ukraine's best leverage over Gazprom.

That's the point of a current natural gas pipeline competition between Russia and the West. Because of its repeated conflicts with Ukraine and others, Russia wants to build a completely new set of natural gas pipelines to supply Europe. But such deepened reliance on Russia makes Europe and the U.S. nervous. So they have mounted a plan to diversify the European supply by going completely around Russia.

Gazprom's latest cutoff will only redouble the European-U.S. effort.

Thanks to O and G Readers

noreply@blogger.com (Steve) — Thu, 28 Feb 2008 17:02:00 +0000

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

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

noreply@blogger.com (Steve) — Wed, 27 Feb 2008 15:39:00 +0000

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

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

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

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

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

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

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

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

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

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

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

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

Of course, lightning could always strike.

Photo: Axel Rouvin
Rights: Creative Commons

The Life of the Oligarchs

noreply@blogger.com (Steve) — Thu, 21 Feb 2008 14:27:00 +0000

When it comes to oligarchs, Vladimir Putin is a choosy ruler. He likes some, he hates some, and sometimes an oligarch can move from one to the other category with some dispatch. So was the fate of Mikhail Gutseriev, who until recently was head of a Russian oil company called Russneft. Putin decided that he wanted one of his favored oligarchs, Oleg Deripaska, to take over the company. Gutseriev resisted. He accused Putin of forcing him to sell. Then, in a story told previously with other Russian billionaires, Russian prosecutors went after him with criminal charges. He's now wanted in Russia for alleged fraud and money laundering, and is seeking asylum in Great Britain, the home of many such Russian outcasts.

This week, the newsletter Nefte Compass has a scoop that Gutseriev has meanwhile become an Azerbaijani oil baron. With $340 million, he has purchased the Azeri holdings of Nations Energy, the Canadian company that last year sold its Kazakh oilfields to China's Citic Resources for $1.9 billion, and made a group of Westerners very rich men.

Azerbaijan, which isn't very close to Moscow these days, is apparently safe ground for Putin's enemies. The suspicion that accompanies such prosecutions is fueled by Putin's custom of pursuing them after a powerful person refuses to bend to his will.

Arctic Counter-Claims; Musharraf's Defeat

noreply@blogger.com (Steve) — Tue, 19 Feb 2008 16:45:00 +0000

Exploring the Arctic: William Broad weighs in today with the fascinating back story to Russia’s pioneering dive to the bottom of the Arctic last summer. Russia claimed the right to half the Arctic seabed, which is probably the largest remaining untapped repository of oil and natural gas on the planet. But in Broad’s New York Times piece, the Russians are depicted as not entirely responsible for the feat.

It turns out that the plan for the dive, including how to return safely, originated with a retired American Navy submariner named Alfred McLaren. The result is a bitterly worded tit-for-tat between McLaren and the Russians. One of McLaren’s defenders, a deep sea diver named Don Walsh who worked with the Russians, calls the Russian dive an “example of how to steal your way to fame [that] will become a legend in the history of exploration.”

But Mike McDowell, an Australian who organized polar voyages that inspired the idea, sides with the Russian credited with the dive, Anatoly Sagalevitch, the expedition’s chief scientist. McLaren, he said, is afflicted with a severe case of sour grapes. “He wanted to be first to the pole. Well, it just didn’t work out that way,” McDowell says.

Pakistan's fresh challenge: Pervez Musharraf seems a lot less nefarious today than his detractors have claimed. Previously, this blog has argued that Pakistan’s leader is far more genuine and certainly no worse politically than those who would unseat him, including the since-assassinated Benazir Bhutto and her rival Nawaz Sharif. After the resounding defeat of his political allies in yesterday’s parliamentary elections, Musharraf has accepted the result, and said he's prepared to work with his opponents.

Reporting by my friend Carlotta Gall out of the country’s west – North West Frontier Province and the tribal territories – has seemed to show that many Pakistanis themselves are fed up with the violent militancy in their midst. That – and finally building up a secular education system – may be the main focus of the new government.

Photo: mape_s
Rights: Creative Commons

What's the Book About?

noreply@blogger.com (Steve) — Mon, 18 Feb 2008 19:47:00 +0000

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