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The Guardian: I’m going to make you an offer you can’t refuse…


The words that should ring in the ears of executives at Shell are those of George Soros. Russia, said the financier earlier this year on the topic of energy supplies, is “a country that does not hesitate to use its monopoly power in devious and arbitrary ways”.

Soros was speaking in the context of letting Rosneft, the chief beneficiary of the Kremlin’s forced purchase of Yukos assets, to list in London. But devious and arbitrary are also good descriptions of events at the huge Shell-led Sakhalin-2 project. It would be naive in the extreme to believe it is pure coincidence that the project has lost its operating licence just as the state-controlled Gazprom is agitating to buy a 25% stake.

Sakhalin-2 was established in the wake of Russia defaulting on its debt. The country needed to attract foreign capital and its bargaining position was weak. Shell got what it regarded as an agreement reflecting the commercial realities of the day. Russia got terms that it now, flush with the proceeds of the high oil price, regards as humiliating.

Simply ripping up a $20bn contract with Shell and two Japanese oil firms may be a step too far, even for the Kremlin. Rather, behind closed boardroom doors, Shell may be encouraged to hurry along its asset-swapping talks with Gazprom. Do not surprised if the environmental licence then miraculously reappears.

If such a cynical manoeuvre is indeed the plot, financial markets and politicians have a decision to make. Events at Yukos could be dismissed as a purely Russian affair but the Kremlin is playing an infinitely more ambitious game in attempting to strong-arm the likes of Shell. With the west pouring billions into Russia, this row has the potential to escalate rapidly.

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