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Energy Tribune: Russian Energy Imperialism

By Michael J. Economides
September 2006

What Nikita Khrushchev tried to do with nuclear weapons during the Cold War almost half a century ago, Vladimir Putin is doing with oil and gas today.

Energy resources are giving Russia a sense of power – and that power may mean more for Russia than economic prosperity. This may explain Putin’s popularity in Russia despite the clear deterioration of democratic institutions, a retrogressing economy that’s almost totally dependent on oil, and international unease towards his policies.

Russia is using its oil and gas to project hegemony over its neighbors, from the Far East (energy-starved China and Japan) to Europe in the west, and attempting to control transit countries such as Ukraine and Belarus. In classic imperialist style, Russia is resorting to divide-and-rule, dangling the same carrot, for example, over China, Japan, Germany, and the United Kingdom, and it’s being coy over the ultimate destination of future energy pipelines, poised to reward or punish, depending on the degree of concessions and acquiescence.

The United States, the presumed sole superpower following its Cold War victory, is far weaker in the realm of energy than it was in nuclear weapons, and it’s helplessly watching Russia’s re-emergence. One reason that rhetoric from Washington has been muted towards Putin’s recent actions, both internally and externally, may be the Bush administration’s preoccupation with Iraq and terrorism. But another is the realization that Putin has most of the marbles when it comes to oil and gas. The United States, with the biggest mouth of all, is not likely to bite the hand that feeds the world of energy.

Russia today is resorting to behavior that is reminiscent of the Khrushchev era, with actions that are transparently brutish, but couched in legalese that nobody really believes. The Russians are accepting corruption as a matter of fact. The whole country has submerged itself in Orwellian double-speak. And as in Khrushchev’s time, criticism of Russia – recall Dick Cheney’s comments about deteriorating democracy and human rights – does not bring a direct response. Instead, Putin indirectly jabs by commenting on Abu Ghraib or Guantánamo.

In this new atmosphere of unchecked power, blatant government actions that would push the limits of credulity anywhere else become the norm. Consider Rosneft’s $10.4-billion IPO.

Many are claiming that this transaction amounts to the sale of stolen goods, following on the expropriation of Yukos in what Andrei Illarionov, Putin’s own senior economic advisor, called the “robbery of the century.” The price tag was exorbitant, far higher than market forces would have suggested, and ignores the risk of ongoing legal challenges in many countries from Yukos’ former shareholders.

Understandably, foreign institutional investors boycotted the IPO. So how did the government handle the situation? They sold the bulk of Rosneft to investors who need access to Russia’s resources. Just four buyers – Malaysia’s national oil company Petronas, China’s CNPC, BP, and a group of investors represented by Gazprombank – accounted for almost half of the IPO, which was “over-subscribed.” The IPO was essentially a private placement.

And then came even more stunning revelations in the Russian press. News came out that Gazprombank – yes, that Gazprom – was purchasing shares in Rosneft on behalf of three Russian oligarchs: Roman Abramovich of ex-Sibneft fame, Vladimir Lisin, and Oleg Deripaska (the country’s first, third, and sixth richest men). Collectively, they shelled out $1.2 billion in the Rosneft IPO. An unidentified investment banker “close to one of the three” oligarchs was quoted as saying that the IPO purchases would pay political dividends for the three. “They paid their party dues,” said the banker.

In contrast to the cozy deals done by the oligarchs, the Russian government recently announced that it is pursuing criminal charges against the American born executives of Yukos, Stephen Theede and Bruce Misamore, allegedly for theft.

Rosneft’s IPO and the Yukos affair wouldn’t meet the smell test in the most corrupt country in the world. But the newly imperial, oil-rich Russia seems to be immune. Putin’s actions get little more than a wink and a nod. But that’s not surprising. When it comes to imperialism, might makes right.

http://www.energytribune.com/articles.cfm?aid=208

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