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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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.

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.

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.

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.

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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."

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.)

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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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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.

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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