Seven years ago, Michael Peel -- a journalist for the Financial Times -- took a boat into the mangrove creeks of Nigeria's oil-rich Niger Delta looking for the country's most infamous rebel. The man was Alhaji Mujahid Dokubo-Asari, or just Asari as everyone knew him. He was ruthless, deft, and had a reputation for luring young men to the creeks to fight for his cause. He spoke eloquently about his aim to kick international oil companies out of the Niger Delta and at last win a fair share of the country's oil wealth for the very region from whose soil it was drawn. "Protests against big oil in the Delta had gone on for many years, but Asari had stepped up the violence and the rhetoric," Peel explains. "From his self-promotional talk, expertly fed into the international media, you would have thought he was Nigeria's Robin Hood, the creeks and mangroves his Sherwood Forest."
In 2007, I made the same journey. Asari had long been unseated as rebel du jour-co-opted by the very government he once fought against. When I arrived in the Delta, a stalky, robust man named Ateke Tom was running the show, hiding out in what had been dubbed the Evil Forest. Ateke, like Asari, walked with a delegation of boys trailing him, watching his every move, ready to serve his every beck and call. Ateke was a patron to those men and to the community; his illicit activity was their entire economic system. Dressed in tacky designer suits that made his sweat run, gold necklaces dangling on his chest, Ateke's bling seemed to shine all the more given where he was from: one of the poorest communities in one of the poorest regions of the globe.
At that moment, Ateke seemed like the most powerful man in the bush. But Ateke also fell-bought out by the government in 2009, just like Asari had been.
History repeats itself in Nigeria. And this is one of the key precepts of Peel's new book about Nigeria, A Swamp Full of Dollars. From the oily delta to the presidential palace in Abuja, time seems almost suspended. One criminal replaces another, the characters falling like dominos once they've sucked the state for their share and fallen victim to their own vices. Throughout the book, Peel seems to be trying to answer the question plaguing his mind: Why and how can the human spirit tolerate so much corruption? It's obviously something that fascinates him-the very anthropology of what's going on. And with an anthropologist's eye, he unpacks a series of morally bereft situations, trying to make sense of them. He concludes that the present is a product of the past, repackaged and re-enacted, over and over.
Vladimir Putin had a relaxing "year of adventure," as my colleagues call it, impressing Russia and entertaining the rest of the world with populism -- motorcycle riding, whale harpooning, fire-fighting -- and coquettish flutters of the eyelids regarding his political intentions or lack thereof in 2012. But the most telling events happened in the closing days and weeks of the year, in which the Russian prime minister revealed his more familiar dark side.
I don't necessarily mean today's harsh prison sentence of 13.5 years against oligarch Mikhail Khodorkovsky -- enough to keep him in jail until 2017, factoring in the time he's already served -- which reflects hard-nosed Putin re-election strategy rather than unadulterated venality on his part. Rather, the more instructive event of 2010 is his embrace this month of racist hoods with chilling power on the street, a thread of extremism that Putin himself kindled and now is racing to get ahead of. Putin's December suggests that, for the moment at least, Russia prefers to remain an unnerving outsider.
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Another reason why oil is a curse: It can force Pentagon officials to be complicit in apparent tax-dodging schemes by contractors providing crucial fuel supplies for the U.S. military.
Or at least that's the gist of a 75-page report issued today by the U.S. House of Representatives Subcommittee on National Security and Foreign Affairs, entitled "Mystery at Manas." It is the result of an investigation into Mina and Red Star Corps., shadowy companies that provide hundreds of millions of dollars a year in jet fuel to the American military's Manas Air Base in Kyrgyzstan and Bagram Air Base in Afghanistan. It is owned by a Stockton, Calif., man named Doug Edelman, who resides in London and registers his companies in the tax shelter of Gibraltar, but under the name of his French wife and Kyrgyz business partner. In the past, this blog has dubbed Edelman the "burger flipper," since his only known previous business venture was a burger joint in Bishkek.
One scoop out of the report concerns the April ouster of Kyrgyz President Kurmanbek Bakiyev. As you recall, Kyrgyz poured into the streets when gasoline prices suddenly went through the roof after Russia clamped on a substantial new customs tariff. Observers surmised that Moscow was punishing Bakiyev for reneging on a supposed agreement to expel Manas in exchange for $2 billion in aid for the country.
Not so, according to the House report -- it was because Mina and Red Star lied to Russia as to its ultimate customer. The companies said -- and Kyrgyz officials backed up the story -- that they were buying Russian jet fuel for civilian use. This was to get around a Russian policy prohibiting the export of strategic assets -- in this case jet fuel -- for purposes of war.
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Turkmen President Saparmurat Niyazov generated yuks during the 1990s, given eccentricities such as his variable taste in hair color, his creative renaming of months, days, cities, and ports, and a megalomaniacal festooning of his photo and bust everywhere. But Niyazov also had less-amusing habits, such as truncating high-school education so that Turkmen students couldn't qualify for foreign universities -- not to mention his taste for big bribes. All of it made many people celebrate when he died of heart disease in 2006.
But as we learn in the latest WikiLeaks cables, not much has materially changed since President Gurbanguly Berdymukhamedov succeeded him. For starters, Berdymukhamedov is a dead ringer for Niyazov, as anyone visiting the country can see: The new president has taken down his predecessor's portraits and frequently replaced them with his own.
A Dec. 17, 2009 cable signed by Sylvia Reed Curran,the charge d'affaires in the U.S. embassy in Ashgabat, relates a chat with an unidentified source with apparent proximity to Berdymukhamedov. Turkmenistan's leader, Curran's source tells her, is "vain, fastidious, vindictive, a micro-manager, and a bit of an Akhal Teke nationalist." (Akhal Teke is a Turkmen tribal zone near Ashkabad. It is also a prized horse breed.) Later in the cable, Curran adds that the president is also "suspicious, guarded, strict,very conservative, a practiced liar, ‘a good actor,' and (again) vindictive." (Of course Berdymukhamedov himself might not agree with any of that, seeing as how he views himself as "an author, surgeon, pilot, sportsman [and] statesman,"Curran said.)
Last week, you'll recall, WikiLeaks brought us the story of a meeting a year ago between Jerry Lanier, the U.S. ambassador to Uganda, and Tim O'Hanlon, an executive of Britain's Tullow Oil, which was trying to buy a stake in a pair of big Ugandan oil fields at the time. Lanier's cable paraphrases O'Hanlon as saying that two other companies had somehow swooped in and grabbed the deal out of Tullow's hands. The suggestion was that a Ugandan minister had been paid off.
Not so, say almost all of those mentioned in the Lanier cable. Last Friday, O'Hanlon wrote a letter to Ugandan President Yoweri Museveni, saying that Lanier got the story all wrong. He had heard the talk circulating of such backroom dealing, O'Hanlon wrote, but he never believed it. "I have no evidence implicating the honorable ministers in corruption and have no reason to believe that the rumors sweeping Kampala at the time were actually true," O'Hanlon wrote.
Amama Mbabazi (above), Uganda's security minister and the official named in Lanier's cable -- in which Lanier told his superiors that the United States might consider revoking Mbabazi's U.S. visa -- said he was equally perplexed by what the cable had to say about his relationship with Italy's Eni and Britain's Heritage Oil. He said:
These allegations are absolutely untrue. I have never received even an offer let alone payment from Heritage or ENI of that kind or for anything. However at that time there was report in The Times of London which did not name anyone but talked about corruption over the deal. What surprised me is that the embassy believes that the allegations are true and concluded that the deal showed signs of high level corruption in Uganda's oil sector. This is incredible. I am surprised they would make a statement like that without cross checking with me about my alleged involvement.
Eni also said that Lanier was far off the mark, and that it intended legal action against WikiLeaks. "ENI denies the serious allegations which are completely without foundation and has instructed its lawyers to initiate legal proceedings to compensate for any damage caused to the company's reputation," a spokesman told Agence France-Presse.
U.S. Defense Department via Wikimedia Commons
There is no graduate-level course in princeling etiquette that I know of, but the latest WikiLeaks cables suggest that diplomatic schools should perhaps offer one. Consider Azerbaijan's first lady, Mehriban Aliyeva (above), and her family, who according to a cable written in January control a bank, insurance, construction, media, telecommunications, real-estate and cosmetics companies, in addition to Baku's only Bentley dealership.
The cable, sent January 27 by Charge Donald Lu, is an impressive profile of Aliyeva. One section relates a story regarding her "substantial cosmetic surgery." During a 2008 visit to Baku by Lynne Cheney, the wife of then-Vice President Dick Cheney, the youthful-looking Aliyeva and her two daughters mingled with White House, U.S. embassy and security staff while they awaited the arrival of the Cheney vehicle. "Which one of those is the mother?" a puzzled U.S. Secret Service agent asked of his colleagues, referring to the three Aliyeva women. No one could figure it out on sight, before one finally decided, "Well, logically the mother would probably stand in the middle." On the other hand, Lu found a downside to the facelift: "On television, in photos, and in person, she appears unable to show a full range of facial expression."
Of course, the bluebloods include not only the Aliyev family, but extend to old pals of late President Heydar Aliyev, the father of current president Ilham Aliyev. Such people are the equivalent of dukes. Topping the list is Kamaladdin Heydarov, the minister of emergency situations, whose father, Fattah, was a close associate of the late president, according to a followup cable that Lu sent to Washington on February 25. Heydarov, Lu writes, is Azerbaijan's second most-powerful titan next to Aliyeva.
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Italy's oil company Eni has long enjoyed a privileged position in oil and gas deals in both Russia and Kazakhstan. The company enabled Russia's dismantlement of Yukos, and has been Gazprom's top-tier partner in tightening its grip on gas supplies to Turkey and Europe. Allegations in one WikiLeaked cable that Italian Prime Minister Silvio Berlusconi and some pals have profited personally from this intimate relationship are not entirely surprising -- nor is it particularly shocking to read allegations of similar Eni activity in Uganda.
The details come in an unusually descriptive new cable released by WikiLeaks. The cable describes a Dec. 14, 2009 meeting between U.S. Ambassador Jerry Lanier and Tim O'Hanlon, vice president for Africa for Britain's Tullow Oil. We have written previously about scrappy Tullow, a serious player around Africa's Lake Albert region, which is believed to potentially contain more than 1 billion barrels of oil.
Here is the backdrop: Tullow was wishing to exercise a right of first refusal to buy the second half of two Ugandan oilfields in which it already held a 50 percent interest. But Eni somehow stepped in and, right around the time of the Lanier-O'Hanlon meeting, announced that it, and not Tullow, would secure the $1.35 billion purchase. O'Hanlon asserted that he knew just how Eni had managed it -- the Italians had created a London shell company through which they were funneling money to Uganda's security minister, Amama Mbabazi.
This bit of news really irritated Lanier, who suggested that he was sick and tired of hearing of "corruption scandals" involving Mbabazi. From the cable:
Depending on the outcome of this major deal, we believe it could be time to consider tougher action - to include visa revocation - for senior officials like Mbabazi who are consistently linked to corruption scandals impacting the international activity of U.S. businesses, U.S. foreign assistance goals, and the stability of democratic institutions.
Lanier said in the cable that he planned to confer with the local British High Commission, plus the Irish ambassador, and talk about writing a joint letter to President Yoweri Museveni expressing their dismay "about these very troubling signs of high-level corruption in Uganda's oil sector, and advocating for the open and transparent sale of oil assets and management of future oil revenues."
We do not know if those meetings took place or if the letter was written. However, the deal was overturned just seven weeks later and given to Tullow under the same terms as Eni.
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One of the latest WikiLeaks scoops is that Royal Dutch/Shell managed to infiltrate employees into every important Nigerian ministry, and obtain regular inside intelligence on government doings, as my colleague Beth Dickinson wrote late last night. My question is, if Shell is so capable and has Nigeria so well wired, why does it continue to be the main target of attack by local militants?
This is a company that three weeks ago yet again declared force majeure to protect itself against lawsuits for non-delivery of some 125,000 barrels a day of oil because of militant attacks on its pipeline network in the country. It could take until next month to repair the Escravos-Warri pipeline, the company says.
All in all, Shell produced 629,000 barrels of oil a day last year, which sounds like a lot until you consider that its facilities are capable of producing more than 1 million barrels a day. Much of that difference is accounted for by massive attacks on its installations. In 2008, Shell also had a bad year, with militants attacking and shutting down its flagship 200,000-barrel-a day Bonga oil platform. Two years before that, Shell threatened to pull out of the Niger Delta entirely after a spate of attacks on its installations resulted in numerous deaths and kidnappings.
This is not meant to be snarky. But is the Nigerian government all that important in this case? Given the stakes, one does wonder if Shell is putting as much effort into infiltrating the Movement for the Emancipation of the Niger Delta, the group responsible for much of the mayhem. A five-year-old story by Michael Peel, the Financial Times' former Nigeria correspondent, reported that militants and others were stealing somewhere between 275,000 barrels a day and 685,000 barrels a day of oil from Shell and other pipelines, at the time worth between $1.5 billion and $4 billion a year. They were spending much of that money on weapons -- which in their business counts as reinvestment into future attacks.
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Apart from the BP oil spill last spring, no global energy story has eclipsed the perennial Ukraine-Russia natural gas spat in terms of global attention, drama, nasty accusations, and pure impact -- the relegation of a dozen European countries into the dark and cold. But there has also been mystery, as in, Why does this keep happening? Russia's Vladimir Putin told us it was all a very simple matter of unpaid gas bills, but experts pointed to the role of personal gain and a little-known intermediary company called Rosukrenergo. This company, putatively controlled by a Ukrainian oligarch named Dmitry Firtash, had somehow positioned itself smack in the middle of the natural gas deal, and appeared to be earning some $4 billion a year for the privilege. But what was Rosurkenergo, and who was Dmitry Firtash to get such a deal? Politicians linked them to an alleged organized crime boss, and suspicious experts and journalists resorted to phrases like "shady" and "secretive" to describe this apparent sweetheart deal.
So it was that William Taylor, the U.S. ambassador to Ukraine, was surprised when, uninvited, Firtash elected to walk into the mission on Dec. 8, 2008, and explained himself, according to a cable filed two days later by Taylor and released by WikiLeaks. Provided this incredible opportunity, Taylor came right out with the main question on everyone's mind: What was his relationship with Semyon Mogilevich, an alleged Russian mob boss wanted by the Federal Bureau of Investigation, and now under arrest in Russia?
As the Financial Times and the Wall Street Journal report, the answer to the question provides fascinating firsthand insight into the way business is really done in Ukraine and the region as a whole. In a nutshell, Mogilevich had indeed given his blessing to Firtash's foray into Ukrainian business, but that did not mean they were business partners, Firtash said. Instead, he went on, he was simply observing "the law of the streets." From the cable:
Firtash answered that many Westerners do not understand what Ukraine was like after the break up of the Soviet Union, adding that when a government cannot rule effectively, the country is ruled by ‘the laws of the streets.' He noted that it was impossible to approach a government official for any reason without also meeting with an organized crime member at the same time. Firtash acknowledged that he needed, and received, permission from Mogilevich when he established various businesses, but he denied any close relationship to him.
Firtash's bottom line was that he did not deny having links to those associated with organized crime. Instead, he argued that he was forced into dealing with organized crime members including Mogilevich or he would never have been able to build a business. If he needed a permit from the government, for example, he would invariably need permission from the appropriate ‘businessman' who worked with the government official who issued that particular permit. He also claimed that although he knows several businessmen who are linked to organized crime, including members of the Solntsevo Brotherhood, he was not implicated in their alleged illegal dealings. He maintained that the era of the ‘law of the street' had passed and businesses could now be run legitimately in Ukraine.
Firtash was just warming up. He stayed in Taylor's office for two and a half hours. Much of the time, he was pouring scorn on Yulia Timoshenko, the former Ukrainian prime minister. But he also seemed intent on polishing up his own image.
In my archive of all-time great oil pieces is a 2002 opus by Norimitsu Onishi in the New York Times which, in addition to taking us deep into the Niger Delta, noted the country's rise from backwater to crucial U.S. strategic interest. Following 9/11, the Bush administration had launched a systematic effort to shift U.S. oil dependence from the Persian Gulf to Africa. From 15 percent of the U.S. supply, the Bush administration aimed for Africa to supply a full quarter of U.S. oil by 2012. Nigeria would be the biggest component, adding a million barrels a day to its production of 2 million barrels a day of among the lightest, most valuable petroleum on the market.
Today, the United States is nowhere near that target. Africa supplies about 18 percent of total U.S. oil imports, or just 11 percent of total consumption. Of that, Nigeria supplies only about 960,000 barrels a day, equivalent to 10 percent of U.S. imports, or 5 percent of total daily consumption.
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James Giffen, the oil dealmaker at the center of what was once the largest foreign bribery case in U.S. history, is officially a free man.
The 69-year-old former oil adviser to Kazakhstan's president, accused of diverting $78 million from oil companies to the Kazakh government, waited out more than a dozen federal prosecutors and sat through some two dozen court appearances and five trial dates over the course of seven years. Today, the effort paid off. Three months after prosecutors announced a stunning capitulation, dropping all foreign bribery, money laundering, and fraud charges against Giffen in exchange for a guilty plea on a misdemeanor tax charge, U.S. District Judge William Pauley ordered no prison time and no fines in sentencing proceedings at a Manhattan courthouse.
In handing down the non-sentence, Pauley seemingly validated the argument to which Giffen's lawyers had clung since 2003: that whatever crimes Giffen had allegedly committed occurred while he was a highly valued foreign asset of the American intelligence. "Suffice it to say, Mr. Giffen was a significant source of information to the U.S. government and a conduit of secret information from the Soviet Union during the Cold War," Pauley said today.
Giffen may have been lesser-known than the other businessmen-cum-criminal-defendants of recent decades, but he was equally colorful, a swaggering, coarse-talking, heavy-drinking womanizer and a charismatic fixture on the Caspian Sea. He arrived in Kazakhstan in 1992, but the trajectory that ultimately landed him there began in 1969, when he started traveling to Moscow as an aide to a Connecticut metals trader. Giffen worked his way up to become a major player in a U.S-Soviet business association with top-level political ties in both Washington and Moscow. When the Soviet Union collapsed in 1991, business in Russia dried up, and Giffen moved on to Kazakhstan, which was quickly becoming one of the hottest oil plays on the planet.
Giffen managed to ingratiate himself with a man he called The Boss: Kazakh President Nursultan Nazarbayev. He became Nazarbayev's chief oil negotiator and, prosecutors alleged, his personal banker. While honchoing some of the era's biggest oil deals, he also diverted some $78 million in payments made to Kazakhstan by now-dead companies like Mobil, Amoco, and Texaco into Swiss and other bank accounts that he set up in the name of Nazarbayev, other senior Kazakh officials, and their relatives, prosecutors alleged. (U.S. diplomats said that Nazarbayev, an unindicted co-conspirator in the case, so dreaded being tarnished by a Giffen conviction that both he and his envoys pleaded repeatedly for the George W. Bush Administration to order the case dropped.)
The case seemed open and shut, since the prosecutors presented a detailed paper trail -- provided by a Swiss magistrate -- of Giffen slicing payments into tiny discrete pieces for transfer into secret Swiss bank accounts, rather than shifting them as a whole, a classic method of money laundering. Even at their most voluble and expansive in court, Giffen's lawyers made no attempt openly to dispute the prosecution's facts. They simply kept repeating that, whatever Giffen may have done, he was taking orders from the Kazakh government -- a sovereign state entitled to its own ideas of legality -- and otherwise serving the patriotic interests of the Central Intelligence Agency.
It was an audacious defense that many thought verged on the preposterous. For one thing, CIA officers of the era deny that Giffen was anything of the sort -- he walked into CIA headquarters on his own volition and talked to agency officers about Kazakhstan, they said, but that was very different from being a trusted asset on an informal assignment. In short, they asserted, Giffen was simply another dude talking.
The CIA, however, appears to have refused to hand over many -- if any -- documents sought by the defense. Judge Pauley had ruled that such documents were obligatory if Giffen were to have access to his rights to adequately defend himself. So the prosecution was left with having to drop the charges.
In his sentencing remarks, Pauley said that he had had access to classified documents that no one else in the courtroom had seen, and that they largely validated Giffen's claims. "He was one of the only Americans with sustained access to" high levels of government in the region, Pauley said. "These relationships, built up over a lifetime, were lost the day of his arrest. This ordeal must end. How does Mr. Giffen reclaim his reputation? This court begins by acknowledging his service."
The world versus China on rare earths. An unusually broad and multinational coalition of business associations wants the G-20 nations to help persuade China to reopen its exports of rare-earth elements. Some three dozen associations from the United States, Germany, Japan, South Korea, and elsewhere asked all G-20 members in a letter to "renounce interference with commercial sale of rare earth elements, domestically or internationally, to advance industrial policy or political objectives." The appeal follows a Chinese shipping embargo on rare-earth exports to Europe, Japan and the United States that began with a dispute over a fishing trawler in the East China Sea. The G-20 will start meeting next week in Seoul.
A Georgian vote for electric fleets. Shai Agassi got Israel to agree to be a guinea pig for his company Better Place, which aims to provide a network of battery-charging stations for electric cars. But now former Soviet Georgia wants to do him one better: It says it will replace its entire government vehicle fleet with electric and hybrid cars over the next four years. The New York Times' Andrew Kramer figures the plan will cost Georgia between $88 million and $166 million, depending on which commercial brands it buys. Georgia largely subsists on foreign aid, but the United States and Japan may welcome such ambition given current pessimism about electric-car sales.
It's official: Higher oil prices are coming. Over the last two years, petroleum behemoth Saudi Arabia has endorsed oil prices in the $70-per-barrel range, and that is largely where they have stayed. Now the influential kingdom is backing a price boost to $90 a barrel, and prices have recently moved in that direction, closing over $86 a barrel. Saudi oil minister Ali Naimi signaled the shift in a statement in Singapore. Meanwhile JPMorgan Chase and Bank of America Merrill Lynch are both forecasting a jump to over $100 a barrel next year, and the International Energy Agency says prices will be tempered in the coming decades only if governments enact climate-change rules that cause oil demand to drop.
The coming Caspian oil boom. The International Energy Agency is projecting that the Caspian states -- Azerbaijan, Kazakhstan, and Turkmenistan -- will produce 5.4 million barrels a day by 2025, double today's volume, and enough to satisfy 9 percent of total global demand at that time. The IEA also notes, however, that Russia continues to choke off the Caspian natural gas exports.
Shell in trouble for palm-greasing. Royal Dutch/Shell, Switzerland's Panalpina World Transport and five oil service companies are paying $236 million in penalties to settle a bribery case with the U.S. government. The companies admit that they paid millions of dollars in bribes to officials in seven countries -- Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia, and Turkmenistan -- in order to facilitate customs shipments and to circumvent other rules.
Elon Musk's new friends. Panasonic is investing $30 million for a 2 percent share of Tesla Motors, the Silicon Valley electric-car startup run by Elon Musk. The Japanese electronics-maker joins Daimler and Toyota as big-ticket investors in Musk's company. Tesla already produces a $109,000 high-end car called the Roadster, and wants to build a mid-range vehicle called the Model S.
Six months after a U.S. fuel contract contributed to the ouster of Kyrgyz President Kurmanbek Bakiyev, we appear no closer to knowing whether his opponents are correct in assuming corruption and other criminality in the deal. At issue is a $3 billion U.S. military contract with two companies registered at mail drops and in offshore tax havens, and run by a cloak-and-dagger California native who makes Julian Assange look as open as Oprah, the Washington Post's Andy Higgins suggests in a weekend piece. The current Kyrgyz government says the contract enriched the Bakiyev family, and that the U.S. tolerated the situation to guarantee the longevity of Manas Air Base, which services the war in Afghanistan. Incidentally, Bakiyev alleged the same thing when he helped overthrow the Askar Akayev regime in 2005.
By approving such contracts, does the U.S. in effect cultivate the very corruption that it aggressively abhors in governments around the world? Scott Horton, a New York lawyer who sits on the board of American University in Bishkek, is among those who think so. At the Harriman Institute last Friday, Horton said:
The latest Transparency International corruption index is out, and it shows that countries occupied by the United States, in which U.S. contract awards have decisive importance to the economy, are two of the five most corrupt on earth. These nations have, moreover, become dramatically more corrupt since the U.S. took over. What is the relationship between having a large U.S. military installation and military contracting on your territory and corruption? The TI index points to a direct relationship. The U.S. talks a good tune about democracy, transparency and the rule of law. What it delivers is just the opposite.
(Full speech transcript here.)
VYACHESLAV OSELEDKO/AFP/Getty Images
Are we surprised at the latest report of corruption out of the former Soviet Union, released days before local elections in Ukraine, which alleges that the country's past government -- like the 12 Ukrainian governments that preceded it -- had some possible problems with dishonesty?
We are not.
Ukraine's current government, led by President Viktor Yanukovich, released a hefty report earlier this month alleging far-ranging corruption under Yanukovich's predecessor, Yulia Tymoshenko, who served as prime minister (her second stint in the job) from 2007 to 2010. The allegations involve $480 million worth of commodity deals, shell companies, tax havens, padded contracts, and other sundry hallmarks of official corruption. "The investigation revealed evidence of misapplication of state funds and apparent fraud involving the highest levels of the previous administration, specific ministries, and private corporations," the report says. Yanukovich's government has filed lawsuits based on some of the findings already.
By far the largest of six cases of alleged misappropriation cited involves siphoning off some $280 million in carbon credit sales from Ukraine's participation in a climate-change program. According to the investigators, Ukraine received the money from Japanese and Spanish electric companies as part of the Kyoto Protocol, which allows pollution emitters to offset excessive carbon dioxide output by paying for "credit" from companies or countries that have reduced their own emissions. The Tymoshenko government violated the terms of the program contracts by not using the money for clean-energy purposes, as required, but rather to shore up the finances of the country's pension fund, the investigators say. (The probe does not allege that Tymoshenko or any other Ukrainian politician personally pocketed the carbon credit money, and doesn't accuse Tymoshenko herself of any wrongdoing.)
Why aren't we aghast? Consider Transparency International's annual Corruption Perceptions Index, released Tuesday. For the 13th straight year, Ukraine was named one of the most corrupt countries on the planet; this time it ranked 134 out of 178, with 178 being the most corrupt. In my experience, U.S. businessmen, diplomats, and journalists who work in the region have long described the Ukraine as the most corrupt of the former Soviet republics. In 2006 -- a year after Tymoshenko began her on-again, off-again tenure in government -- an 84-page report by the U.S. Agency for International Development concluded that this deep-seated corruption began "immediately after independence" in 1991-92. What always happens in Ukraine, the report said, is that "[t]op political and business figures collude behind a facade of political competition and colonize both the state apparatus and sections of the economy."
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Worries about geopolitical bogeymen can overwhelm good sense. Case in point: today's melee over the discovery that Iran has been regularly handing Afghan President Hamid Karzai fistfuls of cash. Just who is Tehran endangering by keeping Karzai lubricated with pocket change? For one, the fellows U.S. troops are fighting: the Taliban. Karzai calls the payments "normal," and he is right. In the case of Afghanistan, Iran is in effect a U.S. ally.
It's useful to keep in mind that Iranian influence in Afghanistan is traditional. The two countries share a language, after all -- making it easy for the Iranians, for instance, to be particularly close to the leaders of the populous Herat and Balkh provinces, in the west and north of the country. Since the mid-1990s, the Iranians have served a useful balancing purpose to the Pashtun Taliban.
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As the saying goes, people gravitate to public service to do good, and stay on to do well. In any case, that apparently is Peter Galbraith's motto. In the 1980s, this foreign policy maven (and son of economist John Kenneth Galbraith) became known for his part in exposing Saddam Hussain's gassing of the Kurds, and for being one of Benazir Bhutto's best allies in America; in the 1990s, he was a key diplomat in the Balkans; and most recently, he was fired as deputy United Nations envoy in Afghanistan, then accused the Kabul government of massive fraud in the 2009 presidential election.
Late last year, we learned from the work of journalists at the Norwegian newspaper Dagens Naeringsliv (Galbraith's wife is from Norway) and the New York Times that Galbraith also has cashed in on his long work in Kurdistan. After the 2003 U.S. invasion of Iraq, Galbraith was instrumental in Kurdistan gaining as much independence from the central government in Baghdad as it did. Now we know fairly well how much Galbraith's work was worth -- between $55 million and $75 million, as established yesterday by a British court presiding over a commercial lawsuit.
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Greenland or bust! On Tuesday the U.K. exploration firm Cairn Energy revealed that it has discovered natural gas in Baffin Bay, just off the west coast of Greenland. It's too early to tell whether the area contains commercial quantities of oil and natural gas, but the find is encouraging. The U.S. Geological Survey has estimated that the waters off the island could contain as much as 50 billion barrels of oil and gas, while melting ice has suddenly made a once-inhospitable area more viable for offshore drilling. Edinburgh-based Cairn is optimistic that the basin could be a major find, and other energy companies have hurried north to apply for exploration licenses. One company that won't be joining them is BP, whose less-than-stellar recent reputation with offshore drilling has forced it to back off. But despite mounting environmental groups' opposition to the drilling and the presence of a renegade ice island floating south, energy companies are likely to continue to flock to what could be the next frontier in oil and gas.
Nigeria's electricity privatization gamble. Nigerian president Goodluck Jonathan announced yesterday that the country plans to privatize the state-owned power monopoly and attract foreign investment in the electricity sector. Electricity demand in Nigeria, the most populous country in Africa, has always strained the country's inadequate national grid thanks to heavily-subsidized prices, and power outages are common. Abuja hopes to drum up some $10 billion in foreign investment to make the necessary upgrades, and already investors from Canada, Turkey, Saudi Arabia, India, and China have expressed interest. In keeping with his other energy reform efforts, President Jonathan is trying to boost his reform credentials as his party heads into national elections in January 2011. Overcoming Nigeria's chronic power crisis would be a critical step forward in the government's pursuit of growth and development.
An unlikely partner in drilling safety. Lee Hunt, president of the International Association of Drilling Contractors, said on Wednesday that he would welcome Cuban state oil company Cubapetroleo (Cupet) to join the organization as "a member of the international drilling community." Hunt and other association officials were visiting Havana this week as Cuba prepares to drill a series of test wells in its section of the Gulf of Mexico over the next two years. Cupet's drilling partners in the project are all members of the industry group, which wants to bring in the Cuban company to ensure that drilling safety and technical standards are met. But the Houston-based organization will have to secure approval from the Obama administration first. While there are no signs that the 50-year old U.S. trade embargo will be lifted any time soon, informal industry cooperation over drilling safety standards could be a modest first step towards some normalization of commercial relations with Cuba.
Drilling ban's diminished impact. Concerns about the Obama administration's extended moratorium on offshore drilling may have been premature, according to John Broder and Clifford Krauss at The New York Times. After much protest from drillers and supply firms, who argued that the ban would endanger thousands of industry jobs and drive drilling from U.S. waters, the impact of the moratorium has been milder than expected. This is because oil companies have used the drilling freeze to perform needed maintenance and upgrades to their rigs, while concentrating more on onshore drilling. Job losses have been far below what the industry claimed they would be. Administration officials have also repeatedly hinted that the ban might be lifted before its November 30 expiration date. Meanwhile, the BP spill seems to have had little to no effect on the progress of other global offshore drilling projects, although other governments have announced new regulations and safety reviews.
China and South Africa ink nuclear energy deal. China and South Africa announced a series of high-profile business deals on Tuesday, one of which could see China National Nuclear Corp. construct a nuclear-power plant in South Africa. Talks are under way with the Chinese state-owned nuclear company to import nuclear technology to South Africa, while a banking partnership between the two countries would finance any joint nuclear efforts. The deals come as South African president Jacob Zuma visited Beijing this week to promote commercial relations with Beijing, South Africa's top trading partner. China has been trying to position itself as a leading exporter of nuclear technology, while continuing its broader strategy of strengthening its presence in Africa.
Could China push the world into alternative fuels? The Council on Foreign Relations' Geo-Graphics blog has an illuminating post this week depicting the potentially sobering effect of China's insatiable demand for oil. According to the chart, once a country's per capita income hits $15,000, oil consumption growth tends to increase exponentially. So far Chinese oil consumption has shown no signs of slowing down, but its per capita oil consumption remains less than 0.1 barrel per person per day, compared to the nearly 0.7 barrels per person per day by the United States. But as China approaches the $15,000 GDP per capita mark, world oil supplies could be in for a shock, as the projected increase in demand would necessitate unrealistic increases in global oil output. If China follows this consumption pattern, alternative energy sources may be looking like less of an alternative and more of a necessity.
Oil prices rebound, gas moves to new low. Crude oil prices were staring at a third straight week of declines before rebounding towards the end of the week, closing at $75.17 Friday in New York. Plummeting U.S. housing purchases and continued high U.S. stockpiles pushed oil prices to an 11-week low of $70.76 on Wednesday, before a reduction in jobless claims, a weaker dollar, and Friday's speech by Fed chair Ben Bernanke renewed confidence in crude. But a weak U.S. economy remains the primary concern for oil analysts, and reports of cooling Chinese oil demand are also likely to encourage bearish sentiments. Accordingly, OPEC has already announced a 0.3 percent cut in crude shipments. High stockpiles of natural gas also caused that commodity to take a beating this week, as prices fell to their lowest levels in nearly a year. And gasoline prices are also in a downward spiral, which should provide some added relief for drivers getting away this Labor Day weekend.
If you want to find a poster child for the idea of the resource curse, you don't have to look much further than Nigeria: A country whose endemic corruption, driven by the largest oil industry in Africa, is the stuff of legend. Nigeria and Nigerian oil, however, are at a crossroads: The country's lawmakers are on the home stretch of an ambitious effort to remake -- for better or worse -- the whole industry.
William Wallis at the Financial Times reports that Abuja is making a serious push -- legislators are taking the unheard-of-in-Washington measure of delaying their August recess -- to pass the Petroleum Industry Bill (PIB), which would restructure the national oil company, raise royalties on foreign oil companies operating in Nigeria, and encourage local Nigerian oil operators to play a larger role in the country's oil and gas industry, the largest in Africa. The stakes for the PIB are high, reviving an oil reform effort that had stalled for years and coming with national elections on the horizon in January 2011. But Diezani Allison-Madueke, Nigeria's oil minister, told Reuters in late July that she is confident that the bill will pass the National Assembly by the end of August.
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Next Wednesday, James Giffen will make what Bloomberg tallies as at least his 20th court appearance in what was, at the time of his arrest, the largest foreign bribery case in American history. Giffen, you may recall, was arrested at JFK Airport in 2003 and charged with channeling some $78 million in oil company payments to the president of Kazakhstan and his associates and family. Seven years later, Giffen now holds another distinction: He's the defendant in the longest-running foreign bribery case in U.S. history. What's going on?
The case involves payments from oil companies that no longer exist -- Mobil, Amoco, Philips -- to a country that once was one of the hottest oil frontiers on the planet, and an exemplar of the charismatic middlemen who get between the two parties, make a deal work, and get paid for this service.
Prosecutors allege that in order to get a deal done in Kazakhstan in the late 1990s one had to go through Giffen, who fashioned himself as counselor to the president of Kazakhstan. According to the charges, he was passing on millions of dollars from the oil companies to his boss, along with gifts like a really neat speedboat.
The main issue in the delay in the case is Giffen's defense -- he says that the whole time he was arranging those payments, he was effectively an asset of the Central Intelligence Agency, which knew or should have known precisely what he was doing. But coming by the evidence to support that defense isn't easy, and the court has ruled that Giffen's right to a fair trial requires the federal government to cough up documents that may help his case.
The CIA still hasn't produce all the requested documents, and Giffen's strategy is to stretch out the time as far as possible in hopes that some or all the charges get dropped. Meanwhile, the court has spent a great deal of time in a farcical discussion about whether Giffen can examine the documents himself once they are produced, or whether they can be viewed only by his lawyer, William Schwartz. (What is the possible difference between Giffen and Schwartz looking at the documents? Does Schwartz have a security clearance?) Meanwhile, Giffen has already blown through five trial dates, and no one seems to know what is taking so long.
O&G's readers include several Giffen experts, and out of curiosity I emailed them for their learned (and anonymous) explanations for the delay. After the jump, the top 10:
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Could BP go Chinese? After BP CEO Tony Hayward jetted around the Middle East last week looking for new investment to boost BP's liquidity, PetroChina indicated that it would "welcome" any offers to invest in the embattled oil major. China's national oil companies have been eager to expand their energy investments abroad, and cooperating more closely with BP or acquiring some of its assets are two potential ways to do it. BP's apparent willingness to sell off some of its assets has also been welcomed by China's CNOOC, Ltd., which has expressed an interest in acquiring BP's 60% stake in Argentina's Pan American Energy.
BP's asset emporium. The Chinese aren't BP's only eager suitors. As the company tries to raise $10 billion in asset sales to cover the costs of its Gulf-related liabilities, Apache Corporation is close to reaching a deal with the energy giant to acquire some major assets in Alaska. But what else might be on the auction block at BP? As this interactive feature shows, the "non-core assets" identified by BP range from Angola to the North Sea, and Australia to Canada.
Nigerian national oil company declares insolvency. The Nigerian National Petroleum Corp., which administers Nigeria's vast oil reserves, was declared insolvent by Nigerian finance minister Remi Babalola this week. According to Babalola, the company needs some $6.6 billion to recoup its costs. The revelation comes after widespread cases of corruption within both the Nigerian oil ministry and the national oil company. While possessing the richest oil reserves in Africa, Nigeria has long struggled to manage its mineral wealth, and actually imports some 85 percent of the refined fuel used by its population.
Congress turns up the heat on BP. An amendment sponsored by U.S. Rep. George Miller (D-Calif.) passed the House Committee on Natural Resources on Wednesday. The proposed Miller amendment, which is part of broader oil-rig safety legislation currently navigating its way through Congress, could effectively prevent BP from acquiring future U.S. oil leases on account of its poor safety record. Whether the amendment comes before the full House, however, depends on whether congressional leaders decide to tackle a broader energy bill before the midterm elections this November.
BP complicates British-American relations, again. In the wake of revelations about BP's apparent influence on the release of Lockerbie bomber Abdel Basset Al-Megrahi by a Scottish court last year, the Senate Foreign Relations Committee has announced a hearing on July 29 to investigate the incident. The British ambassador to the United States has branded the allegations of involvement by BP, which had oil interests in Libya, as "inaccuracies... harmful to the U.K." After the public vilification of Hayward and charges of anti-British sentiment in the United States in the wake of the Gulf spill, Prime Minister David Cameron's visit with President Obama next week should be interesting.
Why drilling in the Gulf of Mexico will recover. It's easy to think that deepwater projects in the Gulf will be limited for the foreseeable future. Think again, says RigZone, an industry publication. Given the American market's strong reliance on Gulf oil production, the established investments of producers in the region, and sustained strong oil prices, it's likely that offshore activity in the Gulf will rebound once the atmosphere becomes less politicized.
Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.