Investment Markets » Natural Resources
BP's Russian Bear Hug
Putin's assault on BP may be the start of a much larger asset grab; Britain should take urgent action.
When it comes to energy in Russia, timing is everything. In 1912, the Rothschilds swapped their Russian oil assets for big shareholdings in Royal Dutch and Shell. Five years later, the wisdom of the move was confirmed when the Nobel family was forced to flee the revolution, selling their one-third share of the country's oil output for a derisory sum.
BP now finds itself in a similar place. When it struck a joint venture with Russian companies to exploit a giant Siberian gas field in 2003 through the creation of TNK-BP, President Vladimir Putin was guest of honour at the signing ceremony. Now it seems all but certain to lose control of this asset over what most agree are trumped-up charges of underproduction.
The sabre-rattling in the Kremlin is so loud BP would probably regard anything that stopped short of a complete sequestration as a triumph. But while the loss of the $20bn Kovykta field would be a blow, there may be worse to come.
The question is whether this is a precursor to a wider assault on BP's interests in Russia, currently the company's biggest source of oil.
Shell has already had a substantial part of its Russian assets confiscated – sorry "renegotiated", so it seems naïve to assume that Putin and his successors will leave the rest of BP's interests untouched.
Regaining control of assets, which many Russians believe were sold off on the cheap to Westerners, has as much to do with restoring Russian pride and honour as its geo-politics. But once the principle of confiscation is established, there is no knowing where it will end.
Why should the Kremlin stop at the energy sector? Telephony, where European companies have up to $15bn of exposure, could be viewed as "strategic" too. Yet many Western investors remain sanguine – foreign direct investment in Russia is rising. In time, this may come to be viewed as incredibly complacent.
Nothing should surprise us about Putin's increasingly Kafkaesque Russia. His goal on energy policy is to use the world's growing dependence on Russian energy exports as a tool to exercise influence. In the light of this, an urgent review of Britain's energy policy is needed.
Time is running out: Russia already supplies a quarter of European gas imports and has plans to grab 10% of the UK market. It is time to pursue a vigorous policy of energy independence, which can only be achieved via a wholehearted move into nuclear power. If Gordon Brown is looking for a realpolitik, pro-business policy to kick off his premiership... that should be it.
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