The Oil and The Glory by Steve LeVine

Oil Prices Are Not Going to Spike Again Just Yet

noreply@blogger.com (Steve) — Wed, 28 Oct 2009 21:07:00 +0000

The party isn't over -- at least not yet.

For the last year, relatively low oil prices have helped us all cope with the economic collapse. We've paid less for gasoline than we have for years. And businesses have paid less for running their factories, planes and product transportation.

But last week we began hearing the music die down and waiters moving guests out the door. The trigger was crude oil surging through the $80-a-barrel barrier for the first time since September 2008. Goldman Sachs, among others, said the hike is a signal of even higher prices going forward. Goldman predicts an average of $110-a-barrel oil next year.

Here's one big reason why the bulls so predict: Global oil exploration and production have dropped, and when economies rebound there will be a shortage. Hence prices are bound to rise. In the U.S., for instance, exploration is down 27.8% from a year ago, with 309 rigs actively drilling, compared with 428 at this time in 2008, according to the Baker Hughes Rig Count. Abroad, there are 8% fewer rigs drilling than there were a year ago—764, down from 831.

Of course, at some point these fellows will be correct -- global economics will gradually improve, and oil and gasoline prices will rise. But as numerous other analysts tell me, there are numerous reasons to expect oil prices to stay where they are, or even drop, for the next year or two.

When oil prices rocketed past $140 last year, the cause lay mostly with speculative dollars capitalizing on the supply-demand balance: There was virtually no spare production capacity anywhere in the world, so that any supply disruption, such as hurricanes in the Gulf of Mexico and the routine militant attacks in Nigeria, pushed prices up. Taking advantage of the tight market, a wide swath of investors including university endowments, investment funds and small investors piled in to funds holding oil futures, driving the price up.

But the situation is different now. Saudi Arabia has added a huge volume of fresh production capacity since last year. Globally, oil producers can produce 6.7 million more barrels a day than they actually sell, according to the International Energy Agency; Saudi Arabia accounts for 3.8 million barrels, or 56%, of the total.

And why aren't the Saudis and others running their oil rigs at full-capacity? Because there's a huge volume of crude already sloshing around the world. New U.S. government data shows that the U.S. stockpile of oil rose by 800,000 barrels in the latest week, and stored gasoline by 1.6 million barrels. All in all, U.S. crude inventories stand at around 340 million barrels, up 27% from a year ago, reports the U.S. Energy Information Administration. In addition, since mid-September the Strategic Petroleum Reserve has exceeded 725 million barrels, a 27-year record. Together, that's about 118 days of U.S. oil imports.

In fact, there's such a global glut that there's almost no place on land to put all the oil. An estimated 125 million barrels' worth are floating around on tankers scattered over the globe, according to the Organization for Petroleum Exporting Countries. Normally, a negligible amount of oil is being stored offshore in ships.

Much of that oil would have to be drawn down before any big price spike takes place.

The main driver of last week's price runup was the weak dollar -- since March, the dollar has fallen 15% in inflation-adjusted value compared with a basket of currencies of its major trading partners. Traders have sought to cushion the fall in the value of the dollars they are holding by buying futures in traditional safe havens. While oil prices have surged by 71% since March, gold has also soared this year by more than 20%, to more than $1,000 an ounce.

But for the last few days, the dollar has hardened up. And oil prices are back down. Today, they fell to $77.46 a barrel.

Maestro, more music please.

Marc Rich on the Art of Boycott Evasion

noreply@blogger.com (Steve) — Fri, 16 Oct 2009 13:06:00 +0000

John Deuss lived a heady 1980s. This Dutchman of proverbial humble roots in the eastern Netherlands city of Nijmegen became worth hundreds of millions of dollars by ignoring a United Nations boycott and shipping Middle East oil to South Africa. On the strength of those dollars, Deuss bought and raced thoroughbreds, bought estates in Florida, Bermuda, Connecticut, Jackson Hole and of course Nijmegen. He sailed on a huge yacht, stayed at the Ritz in Paris, owned a high-end magazine, and of course -- as readers of O&G know -- became a thorn in Chevron's side in Kazakhstan. Today, Deuss is submerged in legal problems associated with a British investigation of a tax fraud scheme that channeled millions of dollars to accounts in the Dutchman's Caribbean bank.

What isn't discussed much is that Deuss wasn't the only one enriching himself on the South Africa oil trade. There actually were two main oil dealers to the pariah government. The other was Marc Rich, the infamous former owner of Marc Rich & Co., a commodities firm that, among other places including Iran, cornered the market for numerous categories of fabulously valuable metals in the former Soviet Union. Rich was charged with tax evasion in the U.S., and fled to Switzerland before then-President Bill Clinton pardoned him on his last day in office.

In a new book by Swiss journalist Daniel Ammann, Rich apparently spills the beans on much of his career. It's called The King of Oil: The Secret Lives of Marc Rich. The New York Times' Jad Mouawad rang up Ammann and asked why Rich opened up. Ammann replied: “There is a funny word in German for this — altersmilder — which means the kindness of old age. Marc Rich is now 74, and maybe he realized that if he didn’t talk, no one would see his side of the story.”

Perhaps Deuss -- and even James Giffen -- will do the same some day?

China, Russia and the Eastern Shift of Energy

noreply@blogger.com (Steve) — Mon, 12 Oct 2009 11:08:00 +0000

The 800-pound gorilla in former Soviet energy is China. Since the late-mid 1990s, Beijing has steadily racked up oil and natural gas deals that draw more and more of Russia's and Central Asia's supplies to China. Cash-rich in a region struggling with the financial crisis, Beijing earlier this year agreed to a $25 billion loan to Moscow in exchange for a 20-year supply of oil. And later this year, a still hard-to-fathom 4,375-mile pipeline will supposedly begin pumping natural gas from Turkmenistan into China.

Now, Russian Prime Minister Vladimir Putin is on his way to Beijing, and a host of fresh energy deals are in the works. Chief among them is continued work on an important natural gas alliance between the countries that -- if completed -- would end up shipping a large portion of Russia's gas to China. It would come from the Kovykta gas field. The two countries have been working on the pact for three years but have yet to reach pricing agreement. But when they do, pressure will increase on Europe to figure out how it will satisfy its growing appetite natural gas. (Will the gas go off in Europe in the beginning of January in the annual flareup of tensions between Ukraine and Russia? The short answer is yes)

Listen this morning as my friend Jim Falk, president of the World Affairs Council in Dallas, interviews James Miles, the Economist's Beijing correspondent, who provides among the best coverage of the country out there. Sign up for it here, then listen in on this link to the live audio feed starting at 11 a.m. EST.

Russia: Nobel, Browder, and the Annals of the Pull to Gamble

noreply@blogger.com (Steve) — Fri, 09 Oct 2009 12:18:00 +0000

Some nine decades ago, Emanuel Nobel, a nephew of Alfred Nobel -- founder of the prizes being awarded this week in Oslo -- fled Baku disguised as a peasant in order to escape the Bolshevik Revolution. As O&G readers know, Alfred Nobels' brothers were the biggest oil barons of all in Baku's 19th-century heyday. In the end, for the Nobels all was lost.

It wasn't a huge surprise. The story of Western investment in Russia is that of a crapshoot. Pockets laden with cash, all say they are entering with a realistic grasp of the country's perils. All say they are therefore taking precautions. Yet the outcome is always the same -- on the way out, some are wealthier than anyone could dream; others, no longer cash-laden, are wearing no shirt. The trick has been to avoid being the latter.

So the narrative continues. Hermitage kingpin Bill Browder had been on a soapbox about Russian investment even before Moscow kicked him out of the country three years ago. Now, he is out with a glossy new, 10-minute video detailing his fall as Russia's biggest foreign investor, to his current status as victim of Russia's unpredictable winds.

The release of the video coincides with a story in yesterday's Kommersant that the Russians intend to issue an international arrest warrant against him. Over at the Reuters blog, my former Business Week colleague Jason Bush notes that Kommersant claimed the very same thing last year, only for the Moscow police to repudiate the report. Still, the public brinksmanship well illustrates the stakes at play in the country.

Update: Jason Bush has just emailed me an MVD report -- Browder is indeed on Russia's international warrant list for arrest.

This is a big news week for foreign investors in Russia. On Monday, Norway's Telenor aped the throw-up-your-arms strategy of BP, and caved in to Alfa Group's Mikhail Fridman. After a prolonged court battle in which Telenor initially seemed ultra-confident that it would prevail, it has changed its mind and will embrace the original peace agreement offered by Alfa, its business partner, which will now run the show. As regards BP, the following day, Reuters' Dmitry Zhdannikov reported that the British oil company is resigned to letting Alfa run their partnership as well -- the oil company TNP-BP. Over at aptly named Seeking Alpha, Craig Pirrong calls this a "marriage made in hell," but corporate honeymoons are usually quite short in Russia.

One thing is for sure -- Moscow is certain that foreign investors will keep returning. On Sunday, Prime Minister Vladimir Putin signaled that Russia would embark on yet another bout of privatization next year. Get out the champagne.

The indicators are that Putin's confidence is well-placed. In Business Week, Carol Matlack writes that western companies continue to flock to Russia despite the perils. Their rationale is similar to what drives gamblers to Vegas: the excitement (never underestimate the appetite of brio-seeking westerners to seek street cred by working in Russia; as a corollary, do not underestimate the Russians' capacity to notice) , and the long-shot prospect of big, big wealth.

Take a look at Business Week's "How to Play It" feature in the same issue as the Matlack story. I hadn't noticed this myself, but after last year's breathtaking nosedive, Russian markets are -- at least of now -- doing extremely well in 2009.

Craps anyone?

Credit: BusinessWeek

Turkish and Armenian Rapprochement: A Region Grows Up

noreply@blogger.com (Steve) — Wed, 07 Oct 2009 13:17:00 +0000

Given the players and the history, a deal is still a long shot. But that traditional antagonists Armenia and Turkey have continued their talks this far -- at least by appearances, they are within three days of an accord re-establishing diplomatic relations and opening their borders -- is already a sign of an until-now missing maturity in the deeply suspicious region.

The main flashpoint between the two countries has been Turkey's 1915 massacre of hundreds of thousands of Armenians. Turkey refuses to acknowledge responsibility for the carnage, and permits pseudo-scholarly denials of the well-established history itself. A second issue is the two-decade-long dispute between Armenia and Azerbaijan over the status of the enclave of Nagorno-Karabakh. Turkey, which supports Azerbaijan in the dispute, has insisted that the issue be settled as part of the rapprochement with Armenia.

Yet, if the pact proceeds and the countries' parliaments go on to ratify it -- not a certainty by any means -- one is led to wonder what else is possible in the region. Could Georgia and Abkhazia lower their voices? Could Georgia and Russia lower theirs? For that matter, could Russia concede that Georgia are Ukraine are independent countries?

All right, I've gone a bit too far. But you get the thrust -- the political courage displayed by Armenian President Serge Sarkisian is notable; I myself witnessed the 1998 coup that brought down then-Armenian President Levon Ter-Petrossian when he was close to a peace deal with Azerbaijan over Nagorno-Karabakh.

Ter-Petrossian's enemies at that time -- the ultra-nationalist Dashnak party -- are leading the domestic Armenian protests against Sarkisian now. Abroad, too, Eurasianet.org reports, Sarkisian faced 3,000 demonstrators outside his hotel in Los Angeles, where he visited Sunday as part of a tour to sell his plan to emigre Armenians. A similar demonstration in Paris turned violent last Friday when emigre Armenians accused Sarkisian of treason and clashed with riot police, Eurasianet.org wrote. In Beirut yesterday, Sarkisian faced an unhappy crowd of Armenians insisting that Turkey first agree to use the term genocide to describe the World War I-era massacre, according to the BBC's Jim Muir.

So the deal isn't quite in the bag. And even if it is, the political fallout is unpredictable.

Which makes the progress all the more remarkable. In the Wall Street Journal today, Marc Champion and Nicholas Birchin report that Turkey has dropped a key condition and will sign Saturday even without settlement of Nagorno-Karabakh.

How Kazakhstan's Uranium Was Won, and Why Gorbachev Did Not Match SDI

noreply@blogger.com (Steve) — Tue, 22 Sep 2009 17:14:00 +0000

David Hoffman -- the Washington Post writer on Russia's oligarchs -- has a new book out today. The Dead Hand is serialized in a couple of pieces in the Post. One of the excerpts is on the famous Project Sapphire, in which, as O&G readers know, the U.S. spirited out more than have a ton of highly enriched uranium from Kazakhstan to Oak Ridge, Tennessee. The second excerpt is Hoffman's take-down of the stubborn fiction that Ronald Reagan's Strategic Defense Initiative was responsible for Mikhail Gorbachev's decision to call a halt to the arms race.

The Sapphire story is the first inside account of the 1993 event, and is riveting, as evidenced by the 372 Diggs (at last count) it's accumulated. It's also accurate "with a few errors," according to then-U.S. Ambassador Bill Courtney, with whom I exchanged emails this morning. That's a high mark in Courtney's lexicon.

The missile defense piece is interesting, too. As those of us who write on Russia today know, this isn't the 1990s -- it's extremely difficult any longer to access archived records of official Soviet meetings, and participants are also nowhere near as easy to speak with. Hoffman managed both to piece together his account of Gorbachev's decision not to match SDI, but instead to let the U.S. spend its billions while seeking a deep cut in nuclear arms.

Religiosity and the Meaning of the Shift on Missile Defense

noreply@blogger.com (Steve) — Sun, 20 Sep 2009 14:15:00 +0000

One is pressed to name a technology attached to as much religious-like fervor as missile defense. We of course are not talking the type of fanaticism seen in the lines around the block to buy the latest iPod, but truly mob-like anger resembling the debate over evolution. It's been that way ever since Ronald Reagan gave missile defense national prominence in 1983. A quarter century later, while the defense industry continues to work toward a breakthrough that would make the technology reliable, the news in Eastern Europe and Russia brings missile defense back front and center in all its passion and vitriol -- Obama has canceled George W. Bush's planned missile defense components in Poland and the Czech Republic, and to the technology's advocates, that means heresy.

As we have discussed previously at O&G, Obama has been bound to make just this move simply because of the irrationality of attempting to persuade Iran or anyone else that Europe is held safe by a non-working technology. In a column today in The New York times, here's how Defense Secretary Robert Gates himself describes the attacks against him since the decision: "I have found since taking this post that when it comes to missile defense, some hold a view bordering on theology that regards any change of plans or any cancellation of a program as abandonment or even breaking faith."

So what is this lathered-up debate genuinely about? It is whether or not there will be any resulting dividends from Moscow as a result. Naturally, the Obama Administration denies any link to Russia, and technically that assertion is correct -- the cancellation I think would have taken place regardless of the friction with Russia.

But payback is nevertheless an issue -- Russia remains an outlier on extremely important matters, including the troubling arc of developments in Iran. Looked through that lens, Obama can be expected to act to eliminate other irritants, too, that have no legitimate U.S. strategic value.

Hence, look next for a trade opening with Moscow -- there's no valid reason to block Russia from the World Trade Organization if it meets the criteria. But don't expect the U.S. to back down in Georgia -- among other factors, the Baku-Ceyhan pipeline continues to link Georgia strategically to the West. The U.S. will probably also continue to pursue the strategic Nabucco natural gas pipeline despite the lack of enough fuel to make it work.

While both of Russia's leaders -- President Dmitry Medvedev and Prime Minister Vladimir Putin -- suggest that they will be more attentive now to U.S. concerns, my friend Masha Lipman at Carnegie in Moscow remarks that "anything that looks like a concession can be viewed by the Russian side as a sign of weakness."

Generally speaking, Lipman is right. But the reduction in the points of friction between Washington and Moscow is still arguably a valid approach to getting Russia on side.

Russian History and the Passing of the Utility of Pipeline Politics

noreply@blogger.com (Steve) — Sun, 23 Aug 2009 15:13:00 +0000

The Harvard historian Richard Pipes has triggered an interesting debate on the Internet with a long piece that leads the Weekend section of The Wall Street Journal. The piece lays out familiar Russian history -- how and why Moscow is so vexed by independent-minded neighbors; why its people go along with political repression; and its dogged pursuit of a status as "a force to be reckoned with, a country to be respected and feared." Pipes goes on to suggest policy prescriptions, including a recognition that Russians are likely to react badly to a feeling of encirclement, and a renewed attempt to persuade Moscow to adopt western political and economic values.

The piece is important not because it's perfectly presented -- I'm puzzled for example by the continued notion that somehow Russians are going to become like the West -- but because we get someone of Pipes' stature laying out once again the historical record. I myself hear dismay from Russia watchers get up in arms over the suggestion that some recent events there -- the impunity of murderers, and the public acquiescence to it all -- follow an arc going back several centuries. To them, I suggest a fresh read of Pipes. Below, I'm posting a video from a speech I just delivered at the World Affairs Council in San Francisco, arguing that time has perhaps passed by the utility of current U.S. oil policy on Russia, specifically that of pipeline politics.

At the American Conservative, Daniel Larison argues inaccurately that Pipes is merely advocating a continuation of two-decade-long U.S. policy. For instance, Larison takes Pipes to task for failing to insist on a break in NATO expansion, when the piece in fact suggests the opposite.

At the Squirrel's Nest, we get an attempt at the long view from Terry McGarty, a Massachusetts startup investor and one of Pipes' former Cambridge colleagues. McGarty quotes a well-known criticism of NATO expansion by George Kennan, one of the best diplomats the U.S. ever turned out. Kennan asserted that, among other things, NATO expansion would restore the atmosphere of the Cold War, and impale Duma ratification of Start II. Today, no one can project backward with certainty how events would have unfolded absent NATO expansion, but, in the context of Russian history, as Pipes well lays out in his piece, even in the most optimistic of circumstances there would have been at minimum the danger of Moscow creeping back into the vacuum of its former Eastern European satellites. And in a more pessimistic turn of events, eastern and central Europe could have been in similar circumstances to Ukraine and Georgia today, confronting an angry, assertive Russia at their border. Finally, Kennan wholly misjudges the Russian position on nuclear arms. Russian politics could change down the road, but since Mikhail Gorbachev the country has favored almost any nuclear arms control deal; none of the serious nuclear arms accords discussed in the post-Soviet era was ever imperiled as far as Moscow's signature was concerned. Kennan had that backwards -- they were upended in the U.S., by the Bush administration.

Cyber-Attack Strategy: Part of Russian Attack on Georgian Pipelines, Report Finds

noreply@blogger.com (Steve) — Thu, 20 Aug 2009 14:30:00 +0000

John Bumgarner, a former cyber-security expert for the CIA and other U.S. intelligence agencies, is attracting much attention for his report concluding that Russia's military offensive in Georgia last year was coordinated with a pre-arranged civilian cyber-attack on the country. What appears to have gone unreported is Bumgarner's conclusion that the region's oil apparatus was a strategic target of the overall conventional-and-cyber offensive.

The 100-page report, conducted for the U.S. Cyber-Consequences Unit, where Bumgarner is director of research, was distributed to U.S. officials and security experts. Bumgarner and I chatted by phone, and he emailed me the nine-page executive summary (thanks to Josh Foust for agreeing to post it at Registan.net. Incidentally, Foust has a good piece on the media war between Russia and Georgia at CJR).

Bumgarner says the report is the result of an examination of hundreds of public Internet forums, sharing of data with sources at home and abroad, and his own reporting on the attack from almost the instant it began. Others have reported that much of the findings were already known; but Bumgarner's findings appear to be the difference between barstool talk and authentic data. Nor is the report the kid-stuff such as carried out last week against 45 million Twitter users along with Facebook members, apparently by a Georgian blogger calling himself Syxymu (the blogger's attempt to Latinize the name of the Abkhazian capital, Sukhumi.).

Its chief takeaway is that the Russian cyberattack -- which disabled 54 Georgian websites in banking, communications and media with the apparent aim of reducing Georgia's capability of responding to the Russian offensive -- was prepared well in advance. Bumgarner writes:

Many of the cyber attacks were so close in time to the corresponding military operations that there had to be close cooperation between people in the Russian military and the civilian cyber attackers. When the cyber attacks began, they did not involve any reconnaissance or mapping stage, but jumped directly to the sort of packets that were best suited to jamming the websites under attack. This indicates that the necessary reconnaissance and the writing of attack scripts had to have been done in advance. Many of the actions the attackers carried out, such as registering new domain names and putting up new Web sites, were accomplished so quickly that all of the steps had to be prepared earlier.

The Russian Embassy in Washington denies any official Russian or military role in the cyber attacks. And in fact Bumgarner writes that he found no sign of official Russian participation, and concluded that no military personnel, with their distinctive fingerprints, could have carried out the attack. But he adds that there had to be complicity. "The organizers of the cyber attacks had advance notice of Russian military intentions, and they were tipped off about the timing of the Russian military operations while these operations were being carried out," Bumgarner writes.

Yet, the cyber attackers did not go in for the kill, Bumgarner told me -- they didn't attempt to cripple sites that could have caused chaos or injury, such as those linked to power stations or oil-delivery facilities, but merely those that could trigger comparative "inconvenience." "There was a political decision not to attack those critical infrastructures directly. They made the point that they could launch these attacks. They showed they have the capability to do more," Bumgarner said.

This mirrors Russian action against Georgia's paramount strategic installation -- the Baku-Ceyhan oil pipeline, by far the biggest reason why the U.S. and the West as a whole are interested in Georgia. We've discussed here how Russia bombed all around the pipeline without actually hitting it -- a clear message that it could do so if it wished, but would refrain for the moment.

Indeed the cyber attack fit into an overall Russian strategy centered on Georgia's oil infrastructure, Bumgarner concludes. It succeeded, in Bumgarner's view. "Unstable ground conditions, augmented by cyber attacks, soon made all of the Georgian pipelines seem unreliable," he writes.

Certainly that was the impact for the first weeks and months -- Russia demonstrated that the pipeline was vulnerable, not to mention dispelling the illusion that Georgia enjoyed special Western protection.

To a large degree, that remains the fact on the ground -- Georgia and the other former Soviet states of the Caucasus and Central Asia are far more deferential toward Russian wishes. Yet the oil and gas continues to flow.

As for the larger picture, most recently Russia has gotten push-back. This week, Georgia announced that it has officially withdrawn from the Commonwealth of Independent States, the grouping formed as a substitute for the Soviet Union at the same time as its 1991 collapse. (In the 1990s, Georgia's refusal to join the CIS infuriated Russia; in 1993, as Russian-backed Abkhaz troops closed in on Sukhumi, then-Georgian President Eduard Shevardnadze, standing alongside his troops, reportedly shouted, Okay, we will join the CIS! Suing for peace with Moscow, Shevardnadze did so soon after.)

And last week, it was reported that the Obama administration has decided to ignore strenuous Russian opinion and revive its training program for Georgian troops. Matthew Yglesias appears to be shocked that Washington would help Georgia through a ruse -- the U.S. claims the Georgian troops are being trained only for action in Afghanistan. Yglesias says this transparently false form of foreign policy -- obviously Georgia will use the training to rebuild its defense capability against Russia -- is "very, very, very silly."

As reasoning, Yglesias trots out the usual -- that the U.S. would blanch if China trained Mexican troops and formed a military alliance with America's southern neighbor. Therefore, Russia's furious opposition to the U.S. assistance -- and to Georgia's interest in joining NATO -- is understandable. The main weakness of this specious-but-much-used argument is that the U.S. and Mexico aren't military antagonists. More to the point, as benjamin81 comments over at The Plank, "A better analogy would be China or Russia training troops in Guatemala or Cuba. We wouldn't like it, but we probably wouldn't lose too much sleep over it either."

This summer, Russia and Georgia have resumed their usual bellicose relationship. Does this portend more war? After the drubbing he has taken since his adventurism last summer, Georgian President Mikheil Saakashvili is unlikely soon to fall for Russian bait. But Georgia will remain a flashpoint, with or without U.S. involvement.

O&G Vacation

noreply@blogger.com (Steve) — Wed, 05 Aug 2009 13:42:00 +0000

Steve is on vacation Aug. 1-17. Please return for more then.

Bill Browder, Russia, and More in the Annals of Personal and Corporate Safety

noreply@blogger.com (Steve) — Mon, 03 Aug 2009 07:33:00 +0000

We've discussed the failure to identify and prosecute those who ordered and paid for the murders of Russian journalist Anna Politkovskaya, Forbes' Paul Klebnikov and others. But what about that of Valery Kazakov, a Russian man slain on the way to testify against the former mayor of the town of Pushkino?

It's the subtext of a piece by Megan Stack of the L.A. Times, whose reporting suggests a couple of principal reasons why such cases don't get solved. One of course is official corruption. But another is that, even when cases have moved through the system in reasonably good order, Russians are hesitant to testify for reasons of personal safety. There's effective impunity not just for killers, but for those who murder witnesses intending to testify against the low-ranking triggermen who typically take the hit for everyone up the food chain.

That's one stubborn reality about Russia. Of a different order are the foreign firms and companies -- lawyers, bankers, investors -- who get fleeced, their local employees jailed, then indignantly scream for justice as though not pre-warned.

Over the last several days, this victim's slot has been filled by American Bill Browder, the once high-flying defender of investment in Russia as head of a $4 billion Russian fund called Hermitage Capital Management. In 2005, Russia effectively expelled the 45-year-old Browder, whose grandfather Earl headed the U.S. Communist Party in the 1930s and early 1940s, and since then he has had to run his fund from a distance in London.

As my colleagues at Business Week and others are writing, Browder now has hired former U.S. Attorney General John Ashcroft to run an unusual case stemming from a subsequent assault on Hermitage in which a couple of subsidiaries were seized. It's a tax fraud and money-laundering case against a group of officials who he says conspired to defraud the Russian government of $230 million.

(Yawn)

We've seen this movie before. For instance, BP keeps returning for more despite its own experience with the rough-and-tumble Russian system.

To his credit, Browder's stratagem at least in part is meant to free one of his Moscow lawyers, Sergei Magnitsky, who was jailed after filing a court statement alleging official corruption in the seizure of the subsidiaries.

Yet BP and Browder stuck around because of the money -- in BP's case, despite it all Russia remains one of its main profit centers. As for outsiders, there's the entertainment value of gaping at the road wreck.

Obama Administration Adding Oil (and Caspian) Balance to Energy Team

noreply@blogger.com (Steve) — Sat, 01 Aug 2009 06:49:00 +0000

One persistent knock against the Obama administration's energy team is that it is one-dimensional -- everyone has a clean-tech background, the mirror image of the oil industry bent of the Bush White House. At the top, climate and energy czar Carol Browner is a former administrator of the Environmental Protection Agency, and Energy Secretary Steven Chu ran, among other things, an alternative energy development program while director at Lawrence Berkeley National Labs. The criticism has been that, even if you want to accelerate non-fossil fuel research and controls on greenhouse gases, you still need a balance in terms of expertise since, according to most forecasts, it's going to be a long time before oil and natural gas vanish from our fuel mix. No policy can be serious unless it takes shrewd account of everything.

All the while, however, word was that the administration intended, but simply hadn't gotten around yet, to name senior global energy officials both in the National Security Council (the president's foreign policy think tank) and the State Department. Now, it looks like Frank Verrastro, one of the Caspian era's steadiest hands, will be taking the NSC job. David Goldwyn, who doesn't have the same oil industry experience but does possess a long biography in senior government energy jobs, will take the State Department position.

Verrastro, currently director of energy and national security at the Center for Strategic and International Studies in Washington, seems likely to be named senior NSC director for energy and the environment.

I first met Verrastro a decade ago when he was Pennzoil's Washington representative and a key player in the negotiation of the pivotal offshore Baku contract between the world's largest oil companies and Azerbaijan President Heydar Aliyev. He was also in the center of the mix on making the Baku-Ceyhan oil pipeline happen.

One main truth I found while researching The Oil and the Glory was that at most a handful of the players -- diplomats, oilmen, local officials, and so on -- truly understood the complex events taking place on the Caspian. Meaning not just being able to recite events, but instinctively grasping them so as to accurately and trenchantly forecast what came next.

Verrastro gets the global oil and natural gas game, and at the same time is conversant on clean energy. I'd say he'll be an effective player.

I don't know Goldwyn at all. He was an assistant secretary for energy during the Clinton administration, and is said to be a former protege of New Mexico Gov. Bill Richardson. Since Dick Morningstar, Eurasian energy czar under Secretary of State Hillary Clinton, already has the former Soviet Union, Turkey and parts of Europe, it looks like Goldwyn will handle the rest of the world. Morningstar is another former Caspian hand from the 1990s.

While we are on the subject of names, Jon Elkind, a former NSC director for Central Asia whom I first met on a plane in Turkmenistan back in 1995, is the new principal deputy assistant secretary of energy for policy and international affairs. Elkind is a no-nonsense kind of guy. The Caspian will be getting smart attention all around.

Nabucco and Trans-Caspian: Times Change, Pipeline Politics Goes On

noreply@blogger.com (Steve) — Fri, 31 Jul 2009 03:43:00 +0000

On one hand, Turkmenistan is in the catbird seat. Exxon, Chevron, BP and ConocoPhillips are salivating over the country's onshore natural gas fields, in particular South Yolotan-Osman, the fifth-largest natural gas field in the world. It's fawned over by the U.S., in particular Richard Morningstar, the special U.S. czar for Eurasian energy.

Yet all is not well in Ashgabad. Four months ago, there was an explosion at a natural gas line connecting the country to Russia, effectively Turkmenistan's sole natural gas customer. Since then, the line has been fixed, yet the natural gas flow has failed to resume. Why? The global financial crisis. Natural gas demand in Europe -- which had been buying up the Turkmen gas through Russia's good offices -- has plummeted. So have prices. Moscow has told the Turkmen that it wants to renegotiate the volume-and-dollar terms for the gas. The Turkmen have protested that a contract is a contract -- a favorite expression that the Turkmen perhaps have learned from Western oilmen over the years -- and so the flow remains halted. With it, Turkmenistan is losing an estimated $1 billion a month in revenue, or about $4 billion to date. That's a lot for a place like Turkmenistan.

There's another problem. It's the pipeline politics in which Turkmenistan is a player, voluntarily or not, by dint of its location in great game territory.

Since the mid-1990s, Washington has pressed Turkmenistan to agree to an extension of the region's new East-West natural gas network that would connect the country with Azerbaijan, and onward with Europe. The rationale was that, in the same way that Azerbaijan and Georgia have ostensibly won some political breathing space from Russia because of the construction of the Baku-Ceyhan oil line, Central Asia and in particular Turkmenistan and Kazakhstan would benefit through the proposed trans-Caspian natural gas line.

Demands for bribes, Russian protests, war in Afghanistan, and gaffes of various sorts have confounded the trans-Caspian. But now it turns out that events may have wholly overtaken the linkup of Central Asia to the balleyhooed East-West Corridor in any case.

First, in its latest iteration, the trans-Caspian was ultimately supposed to feed Nabucco, a natural gas pipeline to Europe, which has ended up at the butt end of continued utility bill spats between Russia and Ukraine. But now it seems that Europe may very well become awash in natural gas from shale deposits within Europe itself, and liquified natural gas shipments from Qatar and elsewhere. In other words, the need for Nabucco -- and natural gas supplies all the way from Central Asia -- has diminished.

But what of Turkmenistan's gas? In terms of Russia's rivals, it turns out that the Chinese have gotten there first. I personally thought the notion was far-fetched, but the Chinese are actually on the verge of finishing the first phase of the Turkmen-China natural gas pipeline, which looks like it will begin flowing by the beginning of next year. Since South Yolotan-Osman are situated in far eastern Turkmenistan, even if one of the western Big Oil companies gets a piece of these fields -- still only a remote possibility -- they will ship east, not west.

In other words, there appears to be little reason for the U.S. to focus on the trans-Caspian any longer, either, except for its own, parochial sake, and not for any larger policy reason, such as how Baku-Ceyhan broke Russia's monopoly over energy transport in the Caucasus.

We'll keep hearing about these lines. And we'll write about them in this space. But their time has passed.

As for Turkmenistan -- it will find its own way.

Pakistan: A Taliban Train the Populace May Climb Aboard

noreply@blogger.com (Steve) — Wed, 29 Jul 2009 11:08:00 +0000

We return to Pakistan and the Army's effort to push back the tide of the Taliban. Over the last two months, it has seemed that the Army -- though long itself a pillar of the country's militant Islamic movement -- finally recognized that its creation now threatened the country's integrity. It has been fighting back against the Taliban. The news is that the Taliban appear to be adapting in a way that could seriously shift the tide in their favor. That adaptation? It is enacting by fiat the land reform promised by self-proclaimed liberals for three decades.

This news, buried in a startling piece by The New York Times' Jane Perlez and Pir Zubair Shah, is important because of the danger that the country's current leadership -- however flawed -- is swept away in favor of one decidedly favorable to the Taliban. David Ruccio rightly calls this powerful turn of events Taliban land reform.

For those like myself who covered the late Benazir Bhutto in her first campaign for prime minister in 1988, this point was paramount -- coming off of eight years of education at Harvard and Oxford, Bhutto vowed to change Pakistan's feudal landscape, in which most of its 170 million people live as virtual serfs under a stubbornly Raj-style landowning class.

A few years earlier, in my time as a reporter in the Philippines, I had been informed by a wise hand that a feudal never betrays her roots. This person was referring to then-President Cory Aquino, but the rule held in Pakistan as well: Bhutto, the scion of Sindh aristocracy and the daughter of revered former Prime Minister Zulfikar Ali Bhutto, never came close to fulfilling her promise.

The Times piece is about Swat, the pristine northern Pakistan region that has been a principal battleground between the Taliban and the Army. The story is set within the context of landowners refusing to return to Swat after the Army swept much of the Taliban out of the area; they don't think it's safe, so many are staying in the capital of Islamabad. In the vaccuum, remaining Taliban "are spreading the spoils among the landless," Perlez and Shah write.

Then go on to quote Vali Nasr, the smart Islamic hand now serving as a senior adviser to U.S. diplomat Richard Holbrooke:

If the large landowners are kept out by the Taliban, the result will in
effect be property redistribution. That will create a vested community of
support for the Taliban that will see benefit in the absence of landlords.

There we have it. Pakistan's political system is wholly founded on the rule of the country's narrow, landowning and industrial class. That includes Bhutto's husband, Pakistan President Asif Zardari, opposition leader Nawaz Sharif, and virtually members of Parliament.

The article further paraphrases Nasr's thinking:

If [the land redistribution] continues, the landlords' absence will have
lasting ramifications not only for Swat, but also for Pakistan's most populated
province, Punjab, where the landholdings are vast, and the militants are gaining
power.

This is the point. The consequence of the Taliban's capture of Swat last year, and their subsequent shift into neighboring Buner, was always the danger of a tipping point, similar to how the Taliban's 1996 capture of Jalalabad tipped the balance and catapulted the group into Kabul, and rule of Afghanistan.

The political survivors in Pakistan's Parliament may want to think about getting in front of this moving train.

Russia and Bending: What Biden Didn't Say

noreply@blogger.com (Steve) — Mon, 27 Jul 2009 04:01:00 +0000

Last Friday, O&G wrote of U.S. Vice President Joe Biden's strong grasp of reality in the former Soviet Union, as expressed in his actions in Ukraine and Georgia. But yesterday, Secretary of State Hillary Clinton tried to sweep up in the wake of a later, widely remarked-upon Wall Street Journal interview with the vice president, headlined, "Biden Says Weakened Russia Will Bend to U.S." Clinton's remarks on a Sunday talk show came after a senior adviser to President Dmitri Medvedev asked, "Who is shaping the U.S. foreign policy, the president or respectable members of his team?"

The Russian official, Sergei Prikhodko, said he found the Journal story "perplexing." I do too, but for different reasons: Unless Biden said something more than is in the story and the excerpts posted on the Journal website, he didn't suggest that Russia will accede to U.S. wishes.

This is important because, bluntly speaking, the Journal headline and the follow-on reporting by The New York Times make Biden look wholly misinformed. This isn't nuance -- if Biden truly meant what the Journal reports he did, Mike McFaul, the National Security Council's Russia hand, needs to get over to the Executive Office Building and have a little chat with him.

The Journal story, written by Peter Spiegel, synthesizes Biden's remarks as such: The seriously weakened Russian economy will "force the country to make accommodations to the West on a wide range of national security issues, including loosening its grip on former Soviet republics and shrinking its vast nuclear arsenal."

Within the story, we get this quote: "I think we vastly underestimate the hand that we hold." The story goes on with this Biden quote: "Russia has to make some very difficult, calculated decisions. They have a shrinking population base, they have a withering economy, they have a banking sector and structure that is not likely to be able to withstand the next 15 years. They're in a situation where the world is changing before them and they're clinging to something in the past that is not sustainable."

To summarize, Biden thinks that the Obama administration has underplayed its leverage as Russia suffers from a profoundly weak economy and disastrous demographics. On the merits of the assertion, I'd argue that the U.S. has not underestimated its leverage -- to suggest that the U.S. can parlay Russian impoverishment into changed Kremlin policy on Iran, on missile defense, on European gas policy, and so on, is simply a misread of Russia. But this is beside the point. Biden does not predict Russian capitulation. It's not in the quotes.

Now to the Journal's second point -- that Biden suggested that Russia will loosen its grip on former Soviet states such as Georgia and Ukraine.

Biden says the following: "I don't expect the Russians to embrace -- particularly this government, particularly Putin -- to embrace the notion that [they should] reject a sphere of influence. But I do expect them to understand we don't accept a sphere of influence."

Fair enough -- Moscow ought to recognize that Washington won't shift a position on Central Asia, on the Caucasus, and on the other Slavic states that's existed since George H.W. Bush's administration. But where is the prediction of a Russian accommodation to the West's position? It doesn't appear in the quotes as far as I can see.

This isn't Biden's finest moment. But it's a problem of a different order from what one would conclude from the Journal headline and lead.

Talk is Cheap, and Now So Is Satellite-Internet Streaming into Iran

noreply@blogger.com (Steve) — Sat, 25 Jul 2009 19:21:00 +0000

By Sasha Meyer

Iran keeps making headlines, and some experts say the crackdown there could fuel repression in Central Asia. Stateside, there's a public debate on what to do. An op-ed in The Wall Street Journal suggests, among other things, giving the Iranians satellite phones by smuggling the handsets into the country. This might work as a quick fix. But, if willing, the West can do a lot more: It can bring censorship-free Internet to everyone's laptop in the region. As noted previously, the idea is already technologically feasible.

On July 1, TerreStar, an American company, launched a satellite through which it will offer phone and Internet service directly to pocket-sized phones, PDAs and laptops in the U.S. and Canada, eliminating the need for conspicuous satellite dishes. The service will start before the end of the year in partnership with AT&T, and consumers will use a dual-mode smartphone that connects both to the satellite and the ordinary cellular network. A competitor – SkyTerra – plans to offer similar services next year, after placing two spacecraft into orbit.

Putting a similar satellite over the other side of the globe would go a long way toward helping to ensure a free flow of information in Iran and Central Asia. How affordable the idea would be depends on two trends.

First, launches are becoming cheaper as private space companies begin their operations. One of them – SpaceX – wants to slash costs 90%, and it's already half way there: On July 13th, it launched Malaysian RazakSAT for $8 million, 50% off the industry average for the same type of technology.

Secondly, dual-mode phones could become commonplace in the next couple of years, which would make launching SkyTerra-like services elsewhere in the world cheaper and less risky. Qualcomm, a major supplier of mobile phone chips, plans to integrate satellite capability into its mass market products. Infineon, another big maker of mobile phone processors, has something similar in the works.

This option of adding extra functionality to their products at little or no extra cost will be attractive to handset makers. The opportunity would be especially appealing to those like Taiwan's HTC and its Japanese competitors that are otherwise big in size, but want to expand their tiny U.S. market share. The former manufactures cell phones for many of the world's biggest brands. The latter make the world's most innovative phones. Both suffer from weak brand recognition in the U.S. Offering a dual-mode handset might be a way to remedy that.

The Malady Called Turkmenbashi

noreply@blogger.com (Steve) — Sat, 25 Jul 2009 10:57:00 +0000

Earlier this week, we reported on the impressive surgical abilities of Turkmenistan's president. Gurbanguly Berdymukhamedov not only rode his dentistry skill to the country's top office three years ago; he also can remove a tumor.

The feat attracted much attention not just at the novelty of a head of state taking time off to perform surgery, but because of whom the president succeeded in 2006. The country's former leader was Saparmurat Niyazov, the self-styled Turkmenbashi, or Leader of the Turkmen. Here was a man with a serious fixation on monuments.

We all had good fun at Turkmenbashi's expense before and after his death in 2006. I did so in this promo for Oil and the Glory last year.

But is this all Turkmenistan is bound for? Being a source of humor to the region and beyond? After awhile, my Turkmen friends certainly didn't think all the fussing was funny, and initially Berdymukhamedov attracted good reports for tearing down some of Niyazov's monuments, and reopening schools and libraries.

But it turns out that the surgery incident was indicative of a problem. Berdymukhamedov seems to have contracted the same malady that afflicted Niyazov.

On Tuesday, we heard that Berdymukhamedov launched a book on Turkmen plants with medicinal uses. Now we are told that he's also an expert on the famed Turkmen horse breed, the Akhal Tekke. His book on the subject is called Akhal Tekke: Our Pride and Glory, according to Daniel Kalder at the Telegraph in London.

The day before yesterday, the president's press service reported that Berdymukhamedov is also a pretty good pilot. He took over the controls of a Sikorsky helicopter in order to get "acquainted with the pace of a season cotton treatment campaign, preparation of land for tillage and harvesting of crops." The Turkmen leader then inspected a construction site from the air before being congratulated on his performance by the head of the country's state airline.

This is a man of the people. Berdymukhamedov's caring reaches even the ordinary tree. As the news service noted, after his official inspection, Berdymukhamedov "issued instructions to government officials to 'carefully examine the state of urban plants and establish proper gardening by providing timely watering of plants.'"

Berdymukhamedov is continuing with at least one of his predecessor's grandiose projects -- "Golden Age Lake," in which he is filling up a 77-square mile desert depression called Karashor with cotton-field run-off.

Quite apart from focusing on such $20 billion ventures while his country is mired in poverty, some people think the project could actually provoke war with neighboring Uzbekistan, which like much of the region has a chronic water shortage.

At the project launch a week ago, Berdymukhamedov turned a shovel-full of earth, then got on a horse and rode away to a waiting helicopter.

There was no word on who piloted it.

What Biden in Ukraine and Georgia Shows: Making Up (With Russia) Is Hard to Do

noreply@blogger.com (Steve) — Fri, 24 Jul 2009 04:03:00 +0000

In a two-day swoop, Vice President Joe Biden has single-handedly signaled something about the reset button: While the idea of rapprochement with Russia that he ostentatiously suggested five months ago is romantic, getting back together usually isn't a good idea for divorced couples. They tend to go back to the same old aggravating habits.

In this case, Biden first went to Ukraine, which he assured that Washington isn't recognizing Russia's claimed entitlement to influence over its neighbors. He said that if Ukraine decides to join NATO, the U.S. is behind it. (Thanks to RealClearPolitics for posting the transcript.)

Then today, Biden flew south to Georgia, where he said the same thing: "We understand that Georgia aspires to join NATO. We fully support that aspiration," Biden said.

Almost nothing is guaranteed to raise the hackles of Russian Prime Minister Vladimir Putin more than the suggestion that Georgia should be permitted to join NATO; a close second would be the same formulation for Ukraine. Russia regards both nations as its own. Indeed, Russian Deputy Foreign Minister Grigory Karasin responded by saying that Georgia is "remilitarizing" after being pummeled by Russia in a five-day war last August, and saying that Moscow might move to stop it.

So why did the Obama administration choose to put irritating language into Biden's mouth? The answer is realpolitik. Washington truly does want calmer, more constructive relations with Russia. It knows that neither Ukraine nor Georgia are capable of meeting NATO requirements; it also knows that the two aren't welcome as members by much of Europe, which -- there is no delicate way of putting it -- allows Russia to call the shots on issues including further NATO enlargement and the direction of new natural gas pipelines.

Yet, putting aside for now the question of whether NATO in fact should expand further, for reasons of politics and appearances, Washington cannot be seen to be acceding to Russia's wishes. So you have speeches like Biden's in Ukraine and Georgia.

It's true that Biden tried to soften the sting by also suggesting that both Ukraine and Georgia could improve their political systems. Biden also refrained from agreeing to Saakashvili's request for a replenishment of armored weapons, which Georgia all-but exhausted in the August war.

Some of the blogosphere is alight with accusations that Washington threw "another ally under the bus," as Pamela Geller over at Atlas Shrugs put it. Others, such as Robert Antonio Hussain, go the other way. "Why must VP Joe Biden stir up the pot all over again about Georgia, Russia, NATO and Georgian Pres. Saakashvili?" wrote Hussain.

The answer to Geller: No he didn't.

The answer to Hussain: Because he must.

After the Matches, After the Drones, How to Capture An Elusive Taliban Leader

noreply@blogger.com (Steve) — Thu, 23 Jul 2009 04:18:00 +0000

For more than a decade, both the U.S. and the Pakistans have tried a rising scale of payments -- from a few hundred dollars up to $25 million -- to capture the most violent militants using the borderlands with Afghanistan as safe harbor. On one of my reporting trips to Pakistan in 1998, American aircraft dropped green matchbooks offering $5 million for the capture of Osama bin Ladin. I keep a box of the matches as a souvenir in a drawer.

Needless to say, neither this system, nor the use of arms, has resulted in many top-rank captures. Those that have occurred – such as that of Khalid Sheikh Mohammed and Ramzi bin al-Shibh – were the result of other traditional intelligence.

Why would dirt-poor people living in the tribal belt give up a chance at millions of dollars for turning in an Uzbek or a Saudi with whom they have absolutely no blood link, with whom their sole link is that they happened to drop in on the village one day?

One reason is the code – the Pashtunwali, under which the tribals don’t make a habit of surrendering guests. The other reason is that the Americans went about it all wrong culturally. What they needed to do was to quietly seek intelligence, without tipping their hand publicly; then lots of Pakistanis, including tribals, might have helped find virtually any of the militants, including bin Ladin.

But after the matches, it was more or less a matter of pride to keep one’s mouth shut. But that’s all another, long story.

What’s now news is a new tactic to make it in the tribal interest to talk. The tactic is arresting other members of the tribe. In the case of Baitullah Mehsud, the Taliban commander accused of murdering former Prime Minister Benazir Bhutto in 2007 and various other continuing acts of mayhem, the Pakistanis are arresting other Mehsuds.

Given that the Mehsuds are an enormous tribe -- according to a seriously good story by The Washington Post’s Joshua Partlow and Haq Nawaz Khan, there are a few hundred thousand of them in and around the Pakistani border region of South Waziristan – there are a lot to choose from. Partlow and Khan report that hundreds of Mehsud-owned businesses may have been shut down, and 25 members of the tribe arrested.

This is getting some bad press. Over at Registan.net, Josh Foust for one is up in arms.

But this seems to me to be among the shrewdest tactics the Pakistanis have employed so far. As my old friend Jim Rupert of Bloomberg reports from the field, drone attacks may have done more to aggravate the region than make its occupants give up Behsud.

Yet those who have actually traveled in the tribal areas know that this is a tough region. It freely engages in smuggling, kidnapping, opium- and gun-running, and so on. I recall inspecting the enormous estate of Haji Ayub Afridi, one of the border region’s most legendary drug smugglers, along the Khyber Pass. Afridi would understand the language the Pakistanis are speaking with such roundups.

This is carrot and stick. The stick is arrest. The carrot is that, if you want to avoid jail and your business shutting down for awhile, the U.S. is offering up $5 million.

Becoming a Central Asian Dictator: Family Helps; So Does Medical Training

noreply@blogger.com (Steve) — Wed, 22 Jul 2009 12:03:00 +0000

We have just a few examples of what it takes to assume control in one of the Caspian's more serious dictatorships. One best way of course is to be the dictator's offspring. But Gurbanguly Berdymukhamedov triggered a search for the dentists of current dictators when he rose to Turkmenistan's leadership in 2006 on the sudden death of President Saparmurat Niyazov.

Now, however, the readers of Central Asian tea leaves may have to recast their successor-guessing net. It turns out that surgeons may do as well.

As Turkmenistan.ru reports today, Berdymukhamedov surpassed himself and actually performed cancer surgery on an unidentified patient from the Balkan Velayat province of western Turkmenistan. Well, he did have a bit of assistance -- two German and one Turkmen specialist were on hand with anesthesia and a helping hand.

This news is attracting attention. In Britain, the BBC reports that the tumor, declared benign, was behind the patient's ear. In Taipei, Taiwan News notes that some think that Berdymukhamedov's book on medicinal plants should be adopted in the training of health workers.

In other words, in terms of analysis, this development could shake up politics. In Kazakhstan, for instance, former first son-in-law Rakhat Aliyev is currently on the outs after unfortunately plotting a couple of coup attempts against President Nursultan Nazarbayev; he is on the run and living in exile in Austria. Central Asia's best analysts say this permanently puts the kabbosh on Aliyev's political ambitions. But these experts need to take into account this Central Asian shift: Aliyev is a trained surgeon.

Anyone have a list of the surgeons of Uzbekistan?

The Thread that Binds the Unrest in Iran and China

noreply@blogger.com (Steve) — Wed, 22 Jul 2009 04:03:00 +0000

A common thread runs through the current hard-line crackdowns in Iran and western China. It's business -- in the case of Iran, the personal fruits of the country's entire economy; in that of China, just ordinary livelihood.

Starting with Iran, Michael Slackman of The New York Times contributes a strong profile on why the Revolutionary Guards are so intent on their man – Mahmoud Ahmadinejad – retaining power after the disputed June 12^th presidential elections. It’s the “military-based conglomerate” that they control, a “multi-billion-dollar empire reaching into nearly every sector of the economy,” Slackman writes. That includes oil, car-making, and road-and-bridge building. Since he came to power in 2005, Ahmadinejad has awarded the Guards 750 oil and natural gas development projects, Slackman writes.

Not that Ahmadinejad initiated a new practice by enriching the group that’s primarily keeping him in power. A year before his 2004 murder in Moscow, Forbes correspondent Paul Klebnikov wrote a brilliant investigative piece on how the family of former Iranian President Ali Akbar Hashemi Rafsanjani had grabbed control over vast swaths of the economy. Today, Rafsanjani fashions himself as a reformer defending voters cheated in the June 12^th election; during the election campaign itself, he threatened to sue Ahmadinejad for accusing him and his family of corruption. Klebnikov doesn’t document corruption; he only lays out the family’s financial rise from poor obscurity.

All this adds up to is what those familiar with the region already know – there are no innocents in the race for power around the Caspian Sea. In the remote chance that Ahmadinejad were swept from power, would a new Iranian regime be clean of such pocket-lining? If the past is any teacher, the answer has to be a firm no. Slackman’s story doesn’t declare otherwise, only that the Guards have much to gain if Ahmadinejad remains in place.

Which brings us to China. Slackman notes that Iran remained conspicuously silent on the Chinese crackdown on Muslim Uighurs this month. One possible reason? One of the Guards’ main trading partners is China, he writes.

In China, my former Wall Street Journal colleague Ian Johnson weighs in with a penetrating piece on the subtext of ordinary business in the violence in Xinjiang. The rioting that killed almost 200 people was triggered in an immediate sense by the murder of two Uighurs, Johnson writes.

But he adds that the undercurrent is seething Uighur anger over the takeover of traditional industries by the majority Han Chinese – the bazaars, even the preparation of halal meats consumed by the Uighurs.

The Grand Bazaar in the regional capital of Urumchi is now run by Han. So is the main marketplace downtown. As for halal meats, Johnson describes a business owned by Huo Lanlan, a Han who runs one of Xinjiang’s largest halal food processors. Of 300 workers, Lanlan employs just a few Uighurs, including a cleaning lady.

So that when the Uighurs rioted, it wasn’t just over a murder. The Uighurs see Chinese prosperity creeping in to Xinjiang, but largely enjoyed by Han from elsewhere.

The Virtues of the Courts: A Window into How Former Soviet Dealmaking Really Happens

noreply@blogger.com (Steve) — Tue, 21 Jul 2009 15:14:00 +0000

When it comes to the Caspian era in the history of oil, it has required the intervention of New York courts and prosecutors to understand the intricacies of how the huge deals happened. In the just-concluded trial of high-end handbag-maker Rick Bourke, we heard evidence of the alleged payoff demands of the late Azerbaijan President Heydar Aliyev. And in the still-to-be-tried bribery case of New York businessman James Giffen, we have pages of detailed federal allegations of payoffs to Kazakhstan President Nursultan Nazarbayev, the cash coming from America's largest oil companies.

Though Central Asia and the Caucasus clearly didn't have a monopoly on official avarice, Russia has remained largely a subject of pub and law firm-conference room talk. Until now.

In two, side-by-side cases being heard on the third floor in London's Royal Courts of Justice, four of Russia's richest former and current billionaire oligarchs are battling over billions of dollars in claims against one another.

The personalities run the 18-year arc of post-Soviet history: Boris Berezovsky, who was instrumental in both Boris Yeltsin's and Vladimir Putin's political careers before falling out and fleeing to England; Roman Abramovich, Berezovsky's successor as Russia's premier oligarch, who had his own frictions in Russia and now lives in London, where he owns the Chelsea soccer team; Oleg Deripaska, Abramovich's successor as the king of Russian oligarchs, who is trying now to keep his empire from falling apart in the global financial crisis; and Michael Cherney, the toppled metals giant who preceded all of them before fleeing to Israel.

The subject of both suits is the 2001 merger of the joint metals empires belonging to Cherney and Deripaska (Sibal), and Berezovsky and Abramovich (Sibneft). The resulting concern is Rusal, the world's second-largest aluminum company.

The kernel of both suits is that Berezovsky and Cherney want more money. In their separate responses, Deripaska and Abramovich claim the two don't merit any.

As with the Caspian, however, the cases appear likely to open up first-hand testimony on how the innards of Russia really work. They include allegations of "illegal acts by senior officials at the center of government" in Russia, including by Prime Minister Vladimir Putin, according to a Financial Times piece today by Michael Peel and Andrew Jack. Jack spills out details specifically of the Berezovsky case in a companion on-line piece.

How to Tour the Unseen New York

noreply@blogger.com (Steve) — Mon, 20 Jul 2009 11:24:00 +0000

In a few days, my wife is going off to New York, and though she lived in the city as a student and knows it reasonably well, she'll be taking with her a gem of a new travel book called New York Curiosities. It's chock-full of the type of gold nugget-little hidden details that you otherwise would have no idea about.

The author, Cindy Perman, actually trolls the entire state of New York. Still, this visit is just to the city. So, as usual, the first thing I did was thumb through to the Russian saunas. Perman earns her legitimacy by visiting the Russian Room, where a fellow named Frank, toting an all-important wrapped bundle of oak leaves, says the baths are "the closest you can get to God -- spiritually, mentally and physically." And then there are the extravaganza gypsy dancing dinners at the Odessa, Rasputin and Primorski supper clubs.

Enough with the former Soviet Union. On to Americana. Perman visits Woodlawn Cemetery, where she skips the monuments to Miles Davis, J.C. Penney and Robert Moses, and heads like a beeline to that of George Spencer Millet, who died at 15 from "falling on ink eraser, evading six young women trying to give him birthday kisses in office of Metropolitan Life Building." Perman glosses over the Brooklyn Bridge and Park Slope and rushes to Brooklyn College, where in the athletic field she finds four or five dozen green monk parrots, which legend has it got there from their native Argentina when a crate at JFK Airport broke apart, and they made an escape.

In the bowels of Grand Central Station, Perman finds the Whispering Gallery, right next to the famous Oyster Bar, where I usually go but totally missed out on the basement's true charms. You can actually stand on one side of the corridor, Perman reports, and your friend on the far other side can hear your whispers.

Looking for some culture -- plus evidence that New York is still the factory of something to the world -- Perman heads to Steinway & Sons, a small shop in Queens where 300 craftsman assemble the approximately 12,000 parts that go into a Steinway grand piano. There is also a sauna here, but it's not for visitors. Unless, that is, you fancy relaxing with a bunch of pianos on their way to being finished.

Exxon, the Chase for Reserves, and the Oil Sands

noreply@blogger.com (Steve) — Sun, 19 Jul 2009 02:26:00 +0000

Talking to corporate analysts over the several years that I've been back in the U.S. and covering oil, a recurring question I hear is how Exxon manages year after year without exception -- unlike its Big Oil rivals -- to replenish its cache of proven oil and natural gas reserves. That's what the company has reported in its news releases and annual reports for the last nine years -- an unbroken trajectory of replacing more than 100% of the oil and natural gas that it pumps out of the ground.

The answer is that it hasn't done so, not at least according to the rules of the Securities and Exchange Commission, which governs such matters. When you examine Exxon's annual filings for 1999-2008, the company has had a quite-normal -- for oil companies, that is -- four years of exceeding 100% replacement, and five years not. For instance, for 2008 the company issued a statement saying that it possessed 22.8 billion barrels of proven reserves; yet its 10-K filing with the SEC reported just 21.1 billion barrels in proven reserves (to get there, see page 7 of the 10-K, and tally up the developed and undeveloped reserves in the consolidated and equity categories).

So I gave Exxon a call. How do you get from 21.1 billion barrels to 22.8 billion barrels? I asked.

Add in the oil sands, was the reply.

That would be the approximately 1.8 billion barrels of oil equivalent that Exxon has booked so far in its Alberta, Canada, oil sand holdings (see pages 22 and 23 of the 10-K; add the Syncrude and Kearl reserves).

Strictly speaking, SEC rules don't permit comingling of oil that's pumped out of the ground, along with oil sands -- exceptionally tar-like material that in most cases isn't pumped, but instead is actually mined like a mineral, then mixed with chemicals in order to move it to a refinery for processing. But companies can comingle them in public announcements such as news releases and annual reports that are read by reporters, investors and Wall Street analysts, according to an SEC spokesman.

This isn't criticism of Exxon. Rather, it's simply evidence that Exxon, like all of Big Oil, is mortal. I wrote about this in a piece earlier this week for Business Week.

In fact, Exxon has been highly critical of how the SEC requires it to report reserves. It has said that it has its own, rigorous, internal methods of assessing its proven reserves, and that this process far more accurately reflects what it possesses.

Why does reserve replacement attract so much attention? Because investors and company analysts regard this metric as a primary measure of an oil company's health. If a company's reserve base is consistently stable or growing, then it's regarded as maintaining its assets as a base for growth. If the reserve base is consistently shrinking, a company can be thought to be cannibalizing itself.

For 2008, for instance, Shell says that it replaced just 95% of what it drilled. The year before, Chevron reported a replacement rate of just 10-15%. That attracted them much critical commentary.

And Exxon? It reported that it replaced 101% of its production in 2007, in addition to 103% in 2008. Yet its SEC report shows that its proven reserves actually dropped both years -- to 21.7 billion barrels from 22.1 billion barrels from 2006 to 2007; and, as mentioned above, on down to 21.1 billion barrels in 2008. The sands made the difference. Without the sands, Exxon's reserve replacement last year would have been about 27%.

The situation will change starting next year. The SEC is going to start allowing companies to combine the oil sands with other reserves. The decision came after oil companies argued strenuously that new technology makes unconventional oil equivalent to conventional reserves, so that now there is no reason not to permit companies to put them in the same basket.

Whatever the case, for the record below are the comparisons for the last nine years, including links for most of them to both the 10-Ks and the relevant news release or annual report.

Exxon's Reserve Replacement (in barrels of oil equivalent)

Oil sands

SEC-10K

In News Release

1999	577 mln	20.6 bln	21.3 b
2000	610 m	20.8 b	21.5 b
2001	821 m	20.79 b	21.5 b
2002	800 m	20.68 b	21.7 b
2003	781 m	21.1 b	22 b
2004	757 m	20.9 b	22 b
2005	738 m	21.6 b	22.4 b
2006	718 m	22.1 b	22.7 b
2007	694 m	21.7 b	22.7 b
2008	1.87 b	21.1 b	22.8 b

How to Rile Up the International Community: Arrest a Donkey (and His Friend)

noreply@blogger.com (Steve) — Fri, 17 Jul 2009 12:17:00 +0000

Can't one arrest a donkey in one's own country?

Adnan Hajizade, a 2005 graduate of the University of Richmond and now a BP public relations staffer in Baku, put on a little prank three weeks ago. He posted a You Tube video of a mock news conference in which, dressed as a donkey, he spoke German, played the violin and joked about a lack of civil liberties in Azerbaijan. The costume itself was a send-up of a government program that imports donkeys at what local critics say is exorbitant prices.

In any case, a week ago Hajizade was in a cafe with his friend Emin Milli, an English and German interpreter who graduated from a German university, when two men walked in and started beating up Hajizade. Milli stepped in, and he got it, too, according to Milli's wife, Leyla Kerimli, a Ph.D student at Columbia University.

Hajizade and Milli went to a police station to file a complaint, but the authorities instead charged them, using the Soviet-era offense of hooliganism. They are now in two-month pre-trial detention, and face up to five years in prison.

It's been downhill for the Azeri government ever since. The U.S. and German embassies complained, to which the government responded by demanding that “embassies of separate countries end their interference in the investigation, which is outside of their diplomatic missions.” That had no effect. Oil companies almost never get into civil rights discussions with governments, but in this case BP also expressed its unhappiness. Hajizade's former classmates in Richmond weighed in.

That wasn't all. Donkeys apparently are intriguing news in a way that the by-now run-of-the-mill political arrests in the region almost never are. France 24 ran a piece. The same was in Brazil, and in Austria. Ellen Barry of The New York Times wrote a piece accompanied by a screen-shot of the donkey video. Bloomberg did a television piece.

Basically, these various officials and media outlets seem to be mocking Azerbaijan. But is that fair? We'll discuss that at another time.

For now, I shared coffee yesterday with Milli's 32-year-old wife, Leyla Kerimli. She's worried about her husband, whom she married two years ago. She and a friend think that there must be a mistake -- an overzealous police lieutenant or prosecutor trying to impress President Ilham Aliyev.

I have a feeling that is the case. After all, there is suspicion that murder in Russia occurs for a similar reason -- an attempt to make the boss happy.

No one serious in Azerbaijan truly thought they could arrest a donkey with impunity.