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The Spider and the Fly

The Streetwise Professor has a sharp post on Vladimir Putin’s recent welcoming party to foreign investors in the Arctic energy sector (which was done with a flair of deadpan comedy).  Really it’s the same old story starting over again – no fair courts or rule of law, no security for investments.  Yet the trap keeps luring them in.

Put differently, Putin is the spider, and any investor would be the fly.  Putin may be desperate now, but once there is pipe in the ground and the gas is flowing, his (or his successors) desperation will disappear, and the temptation to expropriate will be irresistable.   Once caught in the Russian web, any foreign energy investor is likely to be the spider’s meal, sooner or later.

Like the Telegraph says, absent credible, enforceable legal safeguards, western investors should avoid Putin’s blandishments like the plague.  The existence of a resource is a necessary, but by no means a sufficient, condition for a profitable investment.  To profit, you must be able to protect the asset against the predations of the state.  These protections are completely absent in Russia.  STAY AWAY.

It is sometimes argued that, echoing Willie Sutton, energy majors have to invest in Russia because that’s where the oil and gas are.  But, Russia is the Willie Sutton of nations: it will rob energy investors because, as Willie said, that’s where the money is.  But only if they are foolish enough to put it in Putin’s reach.  If they do, it will be no laughing matter.