During the Cold War, the struggle to understand the opaque inner workings and power struggles of the Soviet government was a fully fledged field of academic study, known as Kremlinology.
During the Cold War, the struggle to understand the opaque inner
workings and power struggles of the Soviet government was a fully fledged field
of academic study, known as Kremlinology.
Top U.S. Kremlinologists like Zbigniew Brzezinski or Richard Pipes used
"the tiniest tidbits, such as the removal of portraits, the rearranging of
chairs, positions at the reviewing stand for parades in
Red
Square
, and other indirect signs to try to understand what was happening in
internal Soviet politics."
BP investors must wish they had similar expertise at their disposal as rumors
swirl around the
U.K.
oil
giant's continuing dispute with its Russian partners in TNK-BP, who have
blocked the recent Arctic exploration deal with state oil firm Rosneft.
The latest rumor Friday, that Rosneft was about to end the dispute by buying
out the Russian half of TNK-BP, was quickly slapped down by the Rosneft CEO. But
it would be foolish to assume that the speculation will end there. Nobody knows
what BP's partners, the Alfa-Access-Renova consortium of Russian billionaires,
really wants, or whether the arbitration process that is set to begin on Feb.
14 marks the end, or the escalation, of hostilities.
One way to get an insight into this dispute is to study what happened the last
time BP clashed with its Russian partners, back in the summer of 2008. The
twists and turns of that murky, acrimonious dispute became a little clearer
this week with the release of 15 diplomatic cables from the
U.S.
embassy in
Moscow
, by
WikiLeaks this week.
Before 2008, BP was clearly the driving force in its Russian joint venture--it
had three of five board seats; TNK-BP's CEO Bob Dudley, and COO Tim Summers,
were BP men; a significant number of the company's senior technical staff were
BP employees on secondment to
Russia
.
The Russian billionaires behind AAR, notably German Khan, Mikhail Fridman, and
Viktor Vekselberg, wanted to expand TNK-BP overseas and increase the company's
dividends, but Dudley, who is now CEO of BP, frustrated their efforts. So they
decided to grab more power using every resource at their disposal.
In a June 2008 meeting with two
U.S.
diplomats,
Dudley
is quoted: "[The]
Russian partners were resorting to ever more extreme tactics to gain control of
the company, including the continued use of state administrative
resources."
Around the same time BP's dispute with
AAR
began
to boil over, most of the foreign workers at TNK-BP, including
Dudley
,
began to have visa difficulties, culminating in a raid on the company's office
by immigration authorities and the forced suspension of 148 BP employees in
March 2008.
Dudley
's visa problems continued throughout the dispute,
as did threatening behavior from the Russian authorities. In a cable from
August 2008, BP's chief lawyer in Russia, Michael Drew, described how the
TNK-BP CEO, "often found papers 'left on his kitchen table' upon his
return to his apartment in the evening, presumably left by court or government
officials who let themselves into Dudley's residence."
AAR
clearly had powerful state levers they could pull
to help their cause. "Russian government intervention was needed to broker
a settlement,"
Dudley
said at the June meeting. However,
different factions of the government, and the state energy companies they
represented, were rooting for different sides, or perhaps both sides.
BP believed it had
Russia
's
largest and most powerful corporation, Gazprom, on its side. "Gazprom
still wanted to buy out the Russian half of TNK-BP and pursue a global
partnership with BP," Shawn McCormack, TNK-BP's Vice President for
International Relations, is quoted in a May 2008 cable.
AAR
was
doing its best to fight off Gazprom, McCormack said, but was clearly nervous
about its involvement.
Less than a month later, things hadn't quite worked out as BP expected.
"BP's talks with Gazprom about a global partnership had been put on hold
because of a power struggle within the governing elite, with officials
connected with Rosneft objecting to the partnership,"
Dudley
is
quoted as saying in the June meeting. "
He said he had also heard that the government of Russia was considering letting
the two sides fight each other to exhaustion, like 'Siberian tigers' and then
capture the survivor to create a third Russian major oil company," the
cable says.
A month later,
Dudley
told the
U.S.
ambassador that, "
AAR
is
acting with direct cooperation from the government of
Russia
,
including from Deputy Prime Minister [and Rosneft Chairman] Igor Sechin."
Not long after that,
Dudley
's visa troubles forced him to
leave
Russia
,
allowing German Khan to take full day-to-day control of the company. In
September of 2008, BP submitted to the pressure and cut a deal that saw Dudley
resign and greatly weakened its control of TNK-BP.
"German Khan has moved quickly and aggressively to exert maximum
control," McCormack is quoted in a cable from November 2008. Although the
two sides had agreed to appoint a new, neutral person to head the company,
"the job description of the new CEO could be summarized as 'do what Khan
says'," McCormack is quoted.
BP lost that battle, but it is arguably in a stronger position today.
AAR
still wields considerable influence in
Russia
, and
this time has legitimate means of attack against BP--the shareholder agreement
signed in September 2008 that says BP and
AAR
should have an exclusive partnership in
Russia
.
However, BP also has the explicit and very public backing of Rosneft and
Sechin. In particular, the cross-shareholding agreed between BP and Rosneft was
a huge coup for Sechin and seems like something he wouldn't give up without a
fight.
For all
AAR
's power, it's hard to see them winning a fight
with Sechin.
However, if the events of 2008 tell us anything, it's that we shouldn't assume
that the intentions of factions within the Russian government are as
straightforward as they appear.
As Mark Twain said: "The past does not repeat itself, but it rhymes."
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