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Russia, Frenemy of BP

From Stephen Blank on the Huffington Post:

Russia’s main interest in attempting to buy out BP’s Eurasian holidngs is not profit so much as power. Indeed, all the recent projects it has announced with Central Asia for both oil and gas are essentially “stuck in neutral” and marking time. Certainly it is a highly inefficient producer of oil and gas and has not invested the huge profits it made in 1999-2008 from energy in its energy infrastructure. Thus it now faces the prospect of declining oil and gas production. Moreover its methods of energy extraction, due to corruption, the topography of Siberia and the Russian Far East, huge labor costs, and lack of foreign technology and investment are wasteful and excessively costly. Furthermore Central Asian gas, as Mikhail Khodorkovsky told a US audience in 2002, is of better quality than Russian gas, making the latter less competitive.

Therefore Moscow’s offers to BP represent its intention to claw back as much of this desired monopoly as possible and enforce economic and political dependence on Central Asia, Azerbaijan, and Europe. Were the US claims on BP to drive it into real distress, BP might then be forced, clearly against its current will, to divest itself of some of those Caspian holdings and sell them to Russia. Russia’s predatory tactics in Kovykta show us what we could then expect elsewhere if it did obtain a monopoly on Caspian basin gas going to Europe. That monopoly would also compromise the political independence of Caspian basin states, and East European consumers of Caspian gas and oil. Fortunately with the well in the Gulf now being capped, BP apparently feels confident enough to go into the international money markets to raise capital and may not have to yield to Moscow’s blandishments or to its threats.