The Politics of the (Failed) BP-Rosneft Deal

Today saw a major blow for BP, which had hoped to reverse its Macondo-cursed fortunes through a high-profile, ‘breakthrough’ Arctic-shearing share swap with Rosneft, as the British majo failed to crack the opposition of the AAR consortium.  The path to Russia’s Arctic was always going to be a treacherous one; BP CEO Bob Dudley being particularly well placed to appreciate the perils of oil-dealing in Russia, having had his fingers badly burnt in wranglings during his stint as head of TNK-BP.  But was the intransigence of the four feisty oligarchs behind AAR the real reason for the failure of the deal?  The Financial Times considers the context: 

The politics really matters.  BP’s campaign ran into trouble when it emerged that the deal’s most prominent political backer – deputy prime minister and Rosneft chairman Igor Sechin – had to stand down from the company on president Dmitry Medvedev’s orders. Medvedev was publicly aiming at all ministers holding state company jobs, but it was clear to anybody following Moscow politics that Sechin was the main target.

Next,  the TNK-BP partners, headed by Mikhail Fridman, forcedthemselves centre stage. Arguing that their interests would beundermined if BP switched from TNK-BP to Rosneft as its principalRussian partner, they won arbitration court rulings blocking theBP-Rosneft deal.

BP admitted defeat and, together with Rosneft, tried to buy outFridman and co. Ostensibly they failed because they could not agreefinancial and legal terms. But is that all there is to it? What aboutthe politics?

The deal has developed in the context of mounting electoral campaignsby both Medvedev and prime minister Vladimir Putin.  Medvedev wants tostay in the Kremlin, as does Mrs Medvedev. Putin has not announced hisintentions – but his recent public appearances look very much likecampaigning.

Putin remains the most powerful man in Russia and he will decide whoruns. But he doesn’t have an entirely free hand – he must balance hisown ambitions, the competing claims of senior allies (including Sechin)and their followers,  Russia’s state interests and – to an extent – theposition of the great Russian public. Whoever is the official candidate,the election will be managed to secure for him a thumping popularmajority. But the elite wants it managed well – to give the winner theappearance of a genuine popular mandate.

[…]

Russians are particularly angry that a small group of people -oligarchs – have become billionaires by securing control of thecountry’s natural resources, mostly through cut-price privatisations inthe 1990s.

In this context, the question of a possible buy out by BP/Rosneft ofthe TNK-BP oligarchs becomes very sensitive. Yes, they are rich already.But if they receive cash and BP stock (as was proposed) those richesare suddenly crystallised into numbers that everybody can read in anewspaper or internet headline. And, with Rosneft involved, it lookslike the state – headed de facto by Putin – is backing the deal.

Read the whole article here.