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Russia: Mixing Oil and Politics

posted by zaina19 on April, 2007 as Imperialism

From: MSN NicknameEagle_wng  (Original Message)    Sent: 3/31/2007 2:52 AM
Russia: Mixing Oil and Politics
Publication time: 28 March 2007, 08:59

The finale of Russia's bankrupt oil company Yukos began March 27 with the auction of the last of its assets. Competition over the assets between two large companies -- Russia's oil mammoth Rosneft and natural gas giant Gazprom -- has gotten fierce and is beginning to fracture Vladimir Putin's inner circle. The solution, devised during an impromptu meeting of that inner circle March 24-25, might not make either company happy, but it creates the balance Putin needs as he prepares to leave office.

Bankrupt Russian oil company Yukos began auctioning the last of its property -- approximately four big chunks and several smaller assets -- on March 27. A subsidiary of Russian oil mammoth Rosneft acquired Yukos' 9.44 percent stake in Rosneft. Rosneft's bid countered a bid from British-Russian oil firm TNK-BP, a company in which Russian natural gas giant Gazprom is working to acquire a majority stake. If TNK-BP had won the Yukos auction, the 9.44 percent stake, along with the 1.25 percent stake it already owns, would have been enough to garner TNK-BP -- and eventually Gazprom -- a seat on Rosneft's board. In retaliation, Rosneft has threatened to bid against Gazprom for majority stake in TNK-BP.

Rosneft and Gazprom began competing after they failed to merge in 2005. Until then, the two state-owned companies had always kept to their respective petroleum products -- Gazprom to natural gas and Rosneft to oil. However, after the merger collapsed , they began to cross over into each other's fields, and the wrestling match escalated. The forces behind both Rosneft and Gazprom are powerful members of the so-called "President" Vladimir Putin's inner circle of trusted associates. Putin is planning to leave office within a year, and a fracture of this magnitude would have ominous repercussions unless Putin can get it in check.

Putin held an impromptu meeting of his personal group during the weekend of March 24-25 in order to sort out the Yukos matter. Under his proposal, Rosneft would gain most of Yukos' assets and Gazprom would get TNK-BP and a few smaller Yukos assets. Putin's offering of TNK-BP shows not only how little he values foreign investment, but also the desperation of the situation. With Putin's proposal, Gazprom would lose a degree of its freedom as the newly empowered Rosneft closes in on Gazprom's business maneuvers.

So, why would Putin want to compromise Gazprom, which has championed the government's consolidation of power? The answer is: balance. The devilish mind of putin has always sought to balance competing interests in Russia. He has balanced the oligarchs, military and siloviki while placing his own influential players from St. Petersburg (his hometown) into key positions. Putin has even blurred the lines among most of the groups, as he did when he named siloviki-magnet Sergei Ivanov as defense minister (Ivanov was the first civilian to head the military) and then as first deputy prime minister.

However, in the past few years, the balance has been tipped. Gazprom and its political forces have gained too much power, and if one -- Deputy Prime Minister Dmitri Medvedev, who sits on Gazprom's board -- is a likely successor to Putin, Gazprom must be checked before the transfer of power takes place. Putin must ensure that neither he nor his successor can be overwhelmed by Gazprom. To do this, the president must strengthen Rosneft.

Allowing Rosneft to gain the larger of the Yukos assets is the first step, but the second is to get the company a larger political force with which to counter Gazprom's numerous champions in the government. Gazprom has Medvedev (who, if he does not succeed Putin, is likely to at least fall into the premiership) and Deputy Chief of Staff Vladislav Surkov, Putin's top aide and one of his most trusted allies. Rosneft's sole defender is Deputy Chief of Staff Igor Sechin, Putin's longtime friend and adviser. Though Medvedev is the face of Gazprom's force, it is Surkov and Sechin who are duking it out behind the scenes. If Medvedev becomes president or prime minister, Rosneft will need a force to counterbalance his presence and be the face for Rosneft and Sechin.


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