BP and Rosneft: Beware Russians bearing gifts.
Posted by democratist on January 15, 2011
15th January 2010,
On New Year’s Eve Democratist wrote that it would be very interesting to see how many foreigners were willing to put their cash into Russia in 2011.
We have just received at least one early affirmative answer, from BP, who have signed a joint venture with the energy firm Rosneft to exploit oil and gas deposits in Russia’s Arctic shelf. The firms are to exchange expertise in exploring the region, and Rosneft will take 5% of BP’s shares in exchange for 9.5% of their own.
The deal is unlikely to actually produce any oil or gas for at least three years, but there are already a couple of potential implications that deserve a preliminary mention;
The first is that the deal again underscores the centrality of raw materials to Russia’s development strategy over the coming decades. While Medvedev talks up liberalization and democracy, it is Putin’s ex-KGB chums in the nomenklatura who control the energy companies and the money they produce. As long as the resource rents keep coming in, and BP provides its know-how to ensure the oil flows freely, the pressure for political or economic reform will remain limited. Depending on price levels, Russia can muddle along with the current mixture of autocracy, corruption and a crumbling Soviet-era industrial sector for many years.
The second is the threat that increased involvement with the Russians poses for the UK over the medium term. As our business relationship with companies such as Rosneft deepens, so Russian political influence through multinationals such as BP will increase. Most of the oligarchs are awash with cash, and have already proved themselves effective as lobbyists. Recent spy scandals also highlight the Russians’ interest in political decision-making in the UK and a desire to influence these processes. While companies like BP are free to do deals with Russia and other petro-states, the vigilance of the serious press, civil society, judiciary and others will be become more important to safeguard our political system and (for example) ensure the rule of law continues to be applied in an independent manner, or prevent the watering-down of UK foreign policy in the CIS.
Democratist supports the promotion of political freedom in the FSU. We know that (for the time being) the deck is stacked against us, but we do not share the views of those in this country who would be all too willing to voluntarily put on the golden handcuffs of the Russian state for short-term gain: Corruption, initially during the Soviet period, but more significantly since 1991, has been a disaster for the Russian people, and the City of London (among others) has been implicated in its facilitation. However the UK has also become home to more than 300,000 Russian citizens over the last 20 years, many of whom are by no means mega-wealthy, and who have been attracted to our country in part as a refuge from lawlessness at home (“voting with their feet,” as Lenin might have put it). Over the coming years, a deepening business relationship with Russia in the raw-materials sector will mean it becomes ever more important for the UK to protect and retain the freedoms that have made our country so attractive to outsiders, and prevent the import of corrosive business. political and legal practices along with the financial interests British companies have acquired in Russia.