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Gazprom’s Political Currency in Bolivian Energy Deals

bolivia092208.jpgFor some of you who regularly read this blog, you may want to file this note under “Gazprom – Preemption” – because it’s a topic we have seen come up time and time again. We have written quite a bit in this space about Russia’s energy interests in Bolivia, but I find it particularly interesting to the note the devastating timing of the latest announcement that they are forming a new $4.5 billion joint venture in the tumultuous Andean country with Total and Yacimientos Petroliferos Fiscales Bolivianos (YPFB), the state-held entity. You see, what is extraordinary about this major energy deal is that Gazprom is pushing it through at precisely at a time in which nearly any other rational minded foreign investor would be running for the hills. Bolivia is the midst of one of President Evo Morales’s biggest political crises (and there have been many), as an arrest warrant was issued for Governor Leopoldo Fernandez of the Pando region following weeks of riots between pro-government supporters and opponents resulting in up to 18 deaths and hundreds of wounded. Although crisis talks are now underway between government and opposition, many believe that President Morales is facing a “brewing civil war.” This is a classic example of a Gazprom business announcement which demonstrates the value of what I call “political currency.”

When I talk about political currency, I refer to the non-cash value of soft power which can include everything from political, economic, and even potentially military support as an inducement to enter into some form of a nominal energy deal with a state-owned corporation. In Bolivia, President Morales sees not only an arrangement for YPFB, but also as key support in the UN Security Council from Russia during a time of desperate need.I have argued again and again that we need to redefine political risk because there are certain international companies, particularly Indian, Chinese, and Russian (and even sometimes French) which see their ability to manage political risk as a major competitive advantage. In Gazprom’s case, they have sold Bolivia the same sovereignty narrative that they have sold Nigeria, and it goes something like this: Our having interest in your country provides the Russian state with a meaningful nexus to the survival of your administration. We’re not just a gas company, we’re an insurance company in our own right, with strong interests in your survival. If you need a case study of our effectiveness, just look at the protection afforded to Zimbabwe.The power of the sovereignty narrative to African and Latin American states should not be undermined. Russia’s behavior during the last Nigerian civil war is in no small part the reason Gazprom has signed its recent massive deal with Abuja, and there is good reason to suspect that the Russians are acting advantageously in Bolivia within these tensions of civil war.This entire issue of political currency and sovereignty will be covered in a series of longer blog posts, so stay tuned…