Vladimir Putin has resumed his occupancy of the Kremlin with two signals: He will again be tough with critics in the street. And he intends to attract deep-pocketed foreign business -- a lot of business -- back to Russia.
For much of the last 12 years, Putin has made Moscow's streets inhospitable to demonstrators apart from his often-aggressive youth band, called Nashi. This approach softened starting in December, when tens of thousands of Muscovites were permitted to demonstrate unaccosted against Putin's decision to shift back to president from the lesser prime minister's job. Yesterday and today, though, Putin has reverted to the rough-and-bloody methods to which critics have been more accustomed.
So on the strength of early evidence, Putin is not going to slowly, slowly move toward more open and participatory politics. Instead, it is back to one-man rule.
But is Putin also bad -- or at least not good -- for the Russian economy, as many suggest?
A look at the Micex index of 30 big Russian companies validates the worriers: It is trading near a five-month low against the backdrop of plummeting oil prices, the presidential victory of French socialist Francoise Hollande, and renewed worry over Greece's ability to stand on its own two feet, Bloomberg reports. Russia then, despite its reliable flow of oil and gas exports, remains exceedingly vulnerable to the global economy.
Yet a big business deal that Putin closed over the weekend suggests that Putin may not have lost his touch. The latest of three relatively quiet foreign tie-ups, the deal, if successful, could mean a large and long cash payday for the country. These deals -- all in the oil sector -- suggest that Putin is still an economic player to be reckoned with.
Vladimir Rodionov AFP/Getty Images
On the shale gas patch, the twain decidedly do not meet: Shale gas drillers, on the receiving end of two years of withering attacks by anti-fracking elements, have launched a counter-offensive. A special-purposed group of 11 big industry players including ExxonMobil, Shell, Chevron and Anadarko issued an eight-page code of conduct for hydraulic fracturing in Pennsylvania and New York (pictured above, outside the town of Waynesburg, Pa.). I spoke with Anadarko CEO James Hackett, a leader of the group, before the Obama administration's release today of somewhat stiff rules governing fracking on federal land. As I wrote at EnergyWire, Hackett said the group wished to "set a good example" -- a high bar for all operators on the patch in order to reassure public opinion. But Hackett's vituperative description of critics suggests little room for conciliation between the sides. In a nutshell, Hackett sees himself as a patriot, and his critics as anti-science extremists, and worse.
The industry embarked on the standards as part of studies requested by the Department of Energy and a diverse group called the National Petroleum Council. But it was all against the backdrop of hyper-critical media like "Gasland," Josh Fox's much-watched 2010 documentary on fracking. The companies felt that shale gas "can be developed responsibly, but you had a slew of articles coming out from the New York Times. Whether they were fact-based or not didn't seem to matter," Hackett told me. "The Cornell study, the Duke study, the hysteria that people were trying to create around hydraulic fracturing, which was scientifically misplaced."
So there was industry interest in counter-attacking, Hackett said. But once they were into the process, the CEOs started thinking more broadly that they had something to gain by conceding to regulation. Hackett:
There was a feeling that this could be a useful way for us to proceed long term, because the truth is that the technology does keep changing and the practices keep changing. And we have every bit or more a stake of how the regulatory process evolves and society's acceptances of our industry. We have a bigger stake than I'd say than anyone else but the citizenry that we want to make sure is educated about what the benefits of this are so that they don't just say, ‘You lose your license to operate,' without understanding what it means when they say that.
Read on for more of James Hackett, and the rest of the Wrap.
Mladen Antonov AFP/Getty Images
Vladimir Putin now has something in common with Barack Obama -- approval ratings in the fortieth percentile. So he and his machine are figuring out how to give Russians a better picture of who he is, and what he plans in the next six years. As a first step, he took questions for four-and-a-half hours in a live call-in broadcast today. Russia's government needs "an update," Putin said, seeming to throw fuel on the fire of some who think that one of Putin's main tactics ahead of the March 4 presidential election will be to get President Dmitry Medvedev to quit, and blame Russia's troubles on him.
Yet, according to Russia hands Fiona Hill and Clifford Gaddy, Putin's main obsession at the moment may not necessarily be the election, but shale gas. Hill and Gaddy gathered this idea at the annual Valdai dinner, which Putin has hosted for eight straight years (they have just posted their impressions of the dinner, held last month, at the Brookings Institution web site).
Putin was extraordinarily flat this time, the pair say, becoming suddenly and solely animated on the subject of hydraulic fracturing, or "fracking," the controversial method in which gas is drawn out of hard shale by shooting a water-and-chemical mixture into the rock at tremendous pressures.
Alexey Sazonov AFP/Getty Images
Until September, Russia was ruled in a careful choreography: President Dmitry Medvedev was the face on a tough but reformist agenda that included the construction of Skolkovo, a richly financed version of Silicon Valley in the Moscow suburbs, and a more conciliatory approach to western foreign policy initiatives. Actual power was held by Prime Minister Vladimir Putin, who nevertheless in public was the "chest," spending much time traveling the country in service of showing off his physique and harpooning abilities.
On Sept. 24, however, Putin announced his intention to return as president in elections next year; he would swap with Medvedev, who would take occupancy of the lesser post of prime minister. It would be Putin's third term in the Kremlin, a home he surrendered in 2008 because of a constitutional limit of two consecutive terms. Putin thought that his word, along with the largesse-enabling factor of high oil prices, were sufficient in terms of setting in motion Russia's next political transition. But on Sunday voters told him otherwise -- the ruling United Russia party received less than half the total vote, and had to cheat to get that much. Russians informed Putin that he will have to campaign for victory on March 4.
So why did the ostensibly long-suffering Russians turn on Putin and deny United Russia continuation of the two-thirds margin that it won in the Duma four years ago?
Russia's Vladimir Putin and his associates sought political victory in the usual ways -- barring election opponents from running; flooding the airwaves with favorable "news"; and cheating on voting day. Far from succeeding, however, their result was an "election blow," Reuters reports in a typical account of yesterday's parliamentary balloting. This is because the pro-Kremlin United Russia party picked up about 50 percent of the vote rather than the 64 percent that it got in the last elections. Yet, one senses a ghoulish strain of gloating, as though observing the distribution of shovels for a funeral.
Has the petro-fueled Putin machine in fact suffered a knockdown? This is arguably the case for President Dmitry Medvedev, who according to plan is to swap positions with Prime Minister Putin next May. As this blog has written, a bad election outcome could mean Medvedev being shoved aside and not getting the prime ministerial slot, deal or no deal with Putin. In a jolly video appearance as the results rolled in, the pair seemed prepared to proceed as planned, but Putin -- the country's decider -- can change his mind.
Putin himself has suffered a bruising. But are we witnessing signs of an Arab Spring-like crumbling of his power? As of now, no one sensible is forecasting a Putin defeat in March presidential elections. He appears nowhere near the bloodthirsty-crowds-at-the-palace-gates stage of autocracy.
So what would be a plausible worst-case scenario for Putin?
Dmitry Astakhov AFP/Getty Images
A question of power in Saudi Arabia: The al-Saud family of Riyadh has two principal tasks -- securing its rule, and guaranteeing the smooth, long-term flow of oil income. When these dual objectives come in conflict -- such as they have in the Arab Spring -- the former takes precedence. So it is that, with King Abdullah having allocated a whopping $129 billion in social spending over five years in order to pre-empt restiveness within his population, he has cancelled plans for a $100 billion buildup of the Kingdom's oil production capacity. Saudi Arabia can currently produce about 12.5 million barrels of oil a day, and it had plans to increase capacity to 15 million barrels a day by 2020. In the Financial Times, Aramco CEO Khalid al-Falih said the expansion is no longer necessary because of increased supplies announced elsewhere. The new Saudi plans could exacerbate a projected significant tightening of global supplies in the coming years. But Barclays Capital's Amrita Sen, quoted in the FT, suggested that the rationale is the family's core agenda: "The current focus of Saudi is on domestic social spending on the back of [the] Arab Spring."
Go to the Jump for more of the Wrap
Vladimir Putin's decision to crown himself king anew has not gone as planned. Most recently, Russia's strongman leader has found himself for the first time commenting publicly on the general belief that he is responsible for the career of one of Russia's richest oligarchs, a St. Petersburg man who until a few years ago was a nobody. Putin denied helping Gennady Timchenko, who runs Gunvor, the world's third-largest oil-trading empire, and Novatek, Russia's second-largest natural gas producer. Why is it not possible to be a self-made oilman oligarch in Russia absent Kremlin support, Putin suggests. Indeed, why not?
In any case, with the clarifying benefit of a few days, we return to the matter of the Kremlin Contest, O&G's betting competition for the identity of Russia's next set of rulers. President Dmitry Medvedev's four-year term as president ends next year, with elections scheduled in March. The prevailing wisdom was that Putin would return, but was that a fait accompli? During the summer, we challenged O&G readers to bet on their beliefs.
On Saturday, Putin announced his decision (he would in fact return as president), but a bit of confusion followed when now-former Finance Minister Alexei Kudrin rejected the corollary -- that not only would Putin take up residence again in the Kremlin, but Medvedev would become prime minister. It seemed that Kudrin himself expected to be named to the latter slot. But Medvedev and Putin have put the kibosh on Kudrin's aspirations -- the two will swap positions -- and no one else has challenged Medvedev.
So we proceed with confirmation of Saturday's announcement. We have dual winners of the contest. They are Theo Francis, a writer at footnoted.org, a newsletter that digs into Securities and Exchange Commission documents; and Michael Perice, a fresh political science graduate from Temple University. Both guessed that Putin and Medvedev would swap positions, and that Putin would make his announcement Dec. 8, which was the best estimate of the actual date.
In the coming days, I will personally email, tweet or Facebook the other entrants with instructions on how to mail their wagers to one of the winners. I am going to assign the booty this way: The alphabetical first half of the entries will go to Francis, and the second half to Perice, in order of their own places in the alphabet. Since I bet two objects -- a glass of Rioja and a signed copy of The Oil and the Glory (the book), I will share the wine with Francis and mail Perice the book.
I myself guessed wrong -- I bet that the tandem would stay in place, Medvedev as president and Putin as prime minister (with the decision on Dec. 9, the same date on which he announced in 2007). My reasoning was that everyone knew that Putin was truly in charge, so that he did not need the presidential title -- in other words, the current system worked, and why mess with success? But after the smoke cleared, my wife provided the best and simplest analyses I've heard of what happened: "The tsar wants to be the tsar."
So how did the winners reach their conclusions? I found the methods surprising. Read on to the jump.
Natalia Kolesnikova AFP/Getty Images
Russian Prime Minister Vladimir Putin's decision to reclaim the Kremlin is a bet on high oil prices.
The weekend announcement has rattled markets a bit, Reuters reports -- the value of the ruble dropped after the current president, Dmitry Medvedev, fired Russia's rebellious finance minister, Alexei Kudrin, who is much respected abroad. Some of the angst is rooted in Russia's continued reliance on revenue from its 10 million barrels a day of oil production, and continued failure to diversify its economy.
Yet it is this very hydrocarbon foundation that Putin is banking on in a new period as president starting next May. Western financial analysts wring their hands that Russia needs at least $116-a-barrel oil to balance its budget, while the price of the Brent benchmark is just $105 at the moment and is forecast to drop over the next year or so. But, with his move, Putin aligns himself with the longer-term outlook of most oil-price forecasters, who foresee a major spike in prices starting in roughly 18 months or two years and running until the end of the decade. At that point -- 2020 or so -- many forecasters think oil prices will be so high that they will begin to trigger more or less a permanent destruction of much demand as consumers switch to alternatives.
By that time, Putin will be the end of a new 12-year run as president. His last, highly popular 8-year term as Russian president coincided with high world oil prices -- reaching a record high of $147 a barrel -- which he used to boost employment, to build up a war chest of financial savings, to elevate the buying power of ordinary citizens, and to lead a voluble, chin-out foreign policy.
In remarks in recent days, former Finance Minister Kudrin said that Russia already is having problems absorbing the income from oil prices, resulting in the flight of $31 billion in largely oil proceeds out of the country in the first half of the year, Bloomberg reports. But Putin could simply begin to resume socking away the largesse into a rainy-day fund, or a sovereign wealth fund.
Professional autocrats have practical reasons for playing their cards close to the chest: Neither friends nor enemies can confidently strategize against you; your vital aura of mystery remains in place; and you demonstrate who is truly in charge. So it is with Vladimir Putin, who seems to have confided to just one intimate his intention of reclaiming the mantle of Russian president. Friends and respected others say this is no surprise. Yet I am baffled -- there is almost no upside for Putin in sitting in the Kremlin, and much disadvantageous in doing so.
Let's start with some housekeeping. Over the weekend, I too hastily announced two winners of the Kremlin Contest, the betting competition on who would serve as Russia's president for the next six years. The winners -- Michael Perice of New Jersey and Theo Francis of Washington, D.C. -- submitted identical entries: They both guessed that Putin and President Dmitry Medvedev would swap places, with Putin announcing the decision Dec. 8, which was the closest date. But since then, Russia's finance minister extraordinaire -- Alexei Kudrin (pictured above, exchanging mutual glares with Putin) -- has openly rebelled and declined to serve a Medvedev-led government. Kudrin has so much domestic and international economic cachet -- he had himself been seen as a potential prime minister -- that observers think his brinkmanship can't be ignored. Putin may have to seriously consider running with him, not Medvedev. Since we have contestants who bet on a Putin-Kudrin ticket, we've withdrawn the declaration of the winners and will stand by while the dogs fight under the carpet.
The Kudrin surprise is important whatever the case -- Putin appears to have tipped his decision only to Medvedev, who had to know because he was the one who made the announcement at a United Russia party convention Saturday. That it openly did not go over well is telling.
A few years ago, such secretiveness would have been no problem. But Russia is a different place from 2008, when Putin elevated Medvedev and became prime minister. Now, Kudrin -- appearing to have been blindsided and possessing the chops to confidently complain -- has forced Putin into a possibly awkward position of not appearing as all-powerful as he likes.
Vladimir Putin's announcement today that he is returning to the Russian presidency is risky -- as Russia continues its roller-coaster economic ride over the next six years, wholly subject to the whim of oil and natural gas prices, Putin and Putin alone will be the hero or the dog in the view of his citizens. I had thought that, for the reasons of populism -- the ability to duck blame or claim responsibility when it suited him -- Putin would keep Dmitry Medvedev as a proxy in the Kremlin. But the lack of clarity in power -- the talk that Medvedev might be moving to establish his own power base - may have finally persuaded Putin to push his protégé back into the bleachers. Medvedev will be prime minister.
For the last three months, O&G has been running a betting competition called the Kremlin Contest. We have two winners. I am trying to reach them, and when I do I will announce their names. Congratulations to them, and thanks to all who participated and gave me their thoughts on Russia's always-murky politics.
Update: I have reached the two winners by email. They are Michael Perice, a fresh political science graduate of Temple University, and Theo Francis, a writer from Footnoted.org, a digital news service. Both correctly guessed that Putin and Medvedev would swap places. Both also selected Dec. 8 as the day that Putin would announce his choice, which was the closest to the correct date. I will write more about the winners in a Monday post that analyzes the news. I will also announce how the pot will be split between them. For now, congratulations to the winners, and also to everyone who participated.
Further update: This is awkward. Finance Minister Alexei Kudrin has made a post-game play to upend the Putin-Medvedev swap. There is a conceivable chance that he could succeed. We have standing bets for a Putin-Kudrin ticket. Therefore, we are withdrawing the declaration of winners pending clarification. Both Perice and Francis agree that this approach is best.
Sergei Karpukhin AFP/Getty Images
Medvedev stays, according to O&G readers: The betting stage of the Kremlin Contest is concluded, and the results are - 53 percent for Dmitry Medvedev to 47 percent for Vladimir Putin. That is, there is greater than a 50 percent chance that Putin -- the sole maker of big decisions in Russia -- will decide to keep Medvedev (pictured above today at a Tajik reception in Moscow) in place as president when his term expires in March, according to O&G contestants. That goes against the conventional wisdom, which is that Putin will opt to return to the Kremlin for another six-year term.
Some political junkies favor general public opinion surveys; others prefer barroom trash talk (and bloggery). I see significant merit in what is said by folks having sufficient conviction to back it up with a wager, in this case a small non-cash bet. But O&G bettors are outliers even among this group. U.K. bookmaker Paddy Power, for example, gives odds of Putin winning -- 2/7 for Putin and 9/4 for Medvedev, meaning that for a 100-pound bet on Putin winning you'd receive just 28 pounds back, while the same bet for Medvedev would get you 175 pounds (h/t Anatoly Karlin). (For those with a taste for betting who believe Medvedev will get the nod, it appears shrewdest to take the other side of the 2/7 Putin bet at Paddy Power, which if I am reading correctly appears to pay 350 pounds.)
As you recall, I started off the betting by wagering that the tandem would stay untouched, and that Putin would announce his choice on Dec. 9. But O&G's bettors made me a bit ashamed about my wager of a glass of Rioja. Other bets included Secret Aardvark hot sauce of Portland, Oregon; black and white photos of Moscow taken from the same spot -- one dated 1965 and the other 2011; an African warrior mask from Malabo; and aviator sunglasses. Therefore, I am adding a signed copy of The Oil and the Glory (the book).
Divvying up the Libyan booty: When it comes to war, it is said, the victor gets the spoils. The unstated second part of that phrase is that these spoils are transferred in a very public manner. So it is with the unseemly matter of Libyan oil. Led by the influence of fleet-footed writer Bernard-Henry Levy, France leaped into the Libyan fray on the side of the rebels last March and did not let up. Therefore, says French Foreign Minister Allain Juppe, it is "quite logical and fair" that French oil companies have preferential treatment in the divvying up of post-war reconstruction and other oil contracts. Presumably the sentiment is shared by other NATO members such as the United States who bombed Col. Muamar Qaddafi's troops for months. At the Wall Street Journal, David Gauthier-Villars writes that Russia -- which like Brazil and China maintained a comparative arm's length from the rebels -- is miffed by NATO's sense of entitlement. Moscow wants the United Nations to lead the reconstruction. The catfight is similar to one that followed the 2003 fall of Saddam Hussain, when China and Russia initially lost their favorable oil contracts negotiated with the deposed dictator, only to win serious chunks of the oil patch in subsequent deals with the current Iraqi government. A similar outcome is likely in Libya.
Dmitry Astakhov AFP/Getty Images
What do a big oil deal and the arrest of an alleged murderer suggest about presidential politics? In Russia, where just one man will determine who rules for the next six years, they are among the only bits of evidence that political junkies can cobble together for insight into the country's next election.
In the case of the first, Reuters' Doug Busvine writes that ExxonMobil's coup in the Russian Arctic this week suggests that Prime Minister Vladimir Putin will return to the Kremlin in March. A raid by masked police on BP's premises does imply that Russia still favors Putin's tough-guy approach to dispute settlement.
But can't this simply mean what we all know -- that if you want to talk to the guy in charge, that would be Putin?
After all, we also have Russia's arrest of a ringleader in the 2006 murder of crusading Russian writer Anna Politkovskaya. If Russia's dark side were truly ascendant, we are similarly seeing adherence to the views of President Dmitry Medvedev, who has publicly advocated the rule of law. Does Medvedev look unhappy in the photo above, taken a few days ago?
Putin will rule regardless of where he sits, even if it is Moscow mayor. But we are accustomed to such figures keeping their cards close to their chest until the last moment -- it does not behoove them to tip their hand. What do you think -- will Putin return, or will Medvedev remain in place?
It is not a requirement to be a Russia expert to make your guess in the Kremlin Contest. Today is the last day to vote. Send an email, using the link above my postage-stamp-size photo to the right on this blog. Name Russia's next president, prime minister, and the date that Putin makes the announcement. Identify your small non-cash wager (current bets are a t-shirt, a mug, a book and glasses of wine).
I'm torn -- when Vladimir Putin embarks on yet another show of machismo, does it indicate his political ambitions, his appetite for fun, or a late-midlife crisis? Last night, Putin donned black leather, climbed aboard a Harley and launched his party's campaign for Dec. 4 parliamentary elections. I have never seen a poll in any country where I have lived that indicates motorcycle and leather reliably drive large numbers of votes, but who knows?
There are two days left to earn bragging rights by correctly guessing Russia's future -- will Putin return to the Kremlin as Russia's president? Or are we merely witnessing some of his fun before he again gives the nod to his protégé, Dmitry Medvedev? Tell me what you think in the Kremlin Contest.
Say who will be president, who will be prime minister, and what date Putin will announce his decision. Also name a small, non-cash wager -- current bets include a mug, a T-shirt, and a glass of Rioja -- and send it in a short email using the link on the right of this blog, above my photograph.
Ivan Secretarev Reuters-Pool/Getty Images
What does the nurturing of professional football clubs by Russia's billionaire oligarchs say about the country's coming presidential election? In the case of at least one oligarch, it may mean a bet that Prime Minister Vladimir Putin is headed back to the Kremlin next year. Last week, mining billionaire Suleiman Kerimov made Camaroonian star forward Samuel Eto'o (pictured above in Moscow) the highest-paid soccer player in the world with a salary of $29 million a year. He'll play for Kerimov's Anzhi Makhachkala club, based in his boyhood home, the Russian region of Dagestan. According to Jonathan Wilson at the Guardian, the London newspaper, this is all about pleasing Putin, who has long urged Russia's oligarchs to put their wealth into the country's struggling regions. The soccer club has a long history of supporting Putin.
Is this a shrewd bet? Do you agree that Putin is returning to the presidency? Or will he elect to keep President Dmitry Medvedev in his post? Perhaps Putin will spring a surprise and put someone else in the slot?
Just three days remain to voice your opinion in the Kremlin Contest, O&G's wagering competition for who will be Russia's next president. Using the email link to the right on this blog just above my photo, tell me your best guess for Russia's next president, prime minister, and the date Putin will make his wishes known. For your bet to be valid, you must make a small non-cash wager. Current examples have been mugs, t-shirts and glasses of wine.
The Kremlin Contest: Perusing the first week of entries in our friendly, low-risk wagering contest for who will be Russia's next president, I've discovered that I am not alone: Many conclude that Vladimir Putin will step aside and permit Dmitry Medvedev to remain Russia's president. But where are the Putin bettors -- the multitudes who are sure that Putin will return to the Kremlin in elections next year? Get your bets in: You must name who will be president, who will be prime minister, and the date on which Putin will disclose his choice. You must also name your small, non-cash wager (one contestant has wagered a shot glass; I have wagered a glass of Rioja). Remember that, if you lose, you must mail your wager directly to the winner. You can use the email link in the "About this Blog" box on the right, or my twitter address: @stevelevine. The deadline is Sept. 1.
When oil is next door: On paper, the gasoline-guzzling United States has no oil scarcity problem. To the south, Venezuela has 211 billion barrels of oil reserves, second only to Saudi Arabia. To the north, Canada's Alberta province possesses a conservative estimate of 175 billion barrels of oil. At home, there are the newly prolific volumes of the Bakken and Eagle Ford oil shales, and new plays in the Gulf of Mexico. So why do Americans fret about the supposed peaking of oil? Because of geopolitical, environmental and self-imposed impediments that keep these enormous volumes at arm's length.
Alberta is the piece of this picture that's on my mind today. Chip Cummins and Edward Welsch weigh in with a long, page-one piece in the Wall Street Journal on the province's long, grueling campaign to persuade its southern neighbor -- the United States -- to accept a near doubling of current oil exports to 1.1 million barrels a day, and more down the road. The hang-up is that the crude comes from oil sands (pictured above), which get a lot of Americans riled up because of the pollution created during production and refining.
The worries about oil sands have led Alberta and the companies working there to try to make the sands more environmentally acceptable. For instance, unlike shale gas drillers in the United States, who all-but refuse to police themselves and go transparent, Alberta has adopted a pro-active carbon offset program. They say that, all in all, oil sands are now no more polluting than almost any other form of oil drilling.
Over at Time, Tara Thean asks validly whether new doubt is cast on Alberta's plans to pipe more oil to the United States because of a fresh oil spill from an ExxonMobil pipeline in the Yellowstone River. Alberta will have to respond. But if it does -- which one imagines it will -- U.S. environmentalists ought to reconsider their opposition to this expanded oil flow. Hydrocarbon developers have little incentive to repent if environmentalists demonstrate no capacity for compromise.
Read on for more of the Wrap
A friendly wager -- the Kremlin Contest: Among friends, I'm regarded as a bit of an outsider for my call on next year's Russian presidential elections -- a forecast here and elaboration here that strongman Prime Minister Vladimir Putin will opt not to return to the slot he held for eight years, and instead will select his friend, President Dmitry Medvedev (pictured above), to run again next March. Over at the Washington Post, my former colleague Fred Hiatt is upset with the Kremlin's approach to electoral politics, but that's beside the point. The prevailing opinion is that Putin will return to the Kremlin, but I bet a glass of Rioja on Medvedev with the husband of a senior FP editor who sides with the conventional wisdom (she herself declined to reply to the challenge). None of this sways my colleagues. The other day, one fellow in the office called my prediction "implausible."
So I am throwing out a public wager -- an election pool of a sort. Here are the rules: The winner must correctly name who is Russia's next president and prime minister, plus the date when Putin makes the announcement. To be eligible, contestants must toss a small non-cash item into the pot (you will be wise to carefully observe this rule, because unless you yourself prevail, you'll be mailing your contribution to the winner or otherwise arranging for its receipt; I'm throwing in another glass of Rioja, and if necessary will figure out how to deliver it.). The contest is winner take all, to be divided up on my judgment alone in the event of a tie. If the correct date isn't guessed, the winner will be closest to the actual date without going over. The deadline for entry is Sept. 1 since Putin probably won't make his choice clear before then.
This may not be as easy as it sounds. A ringer in the mix for example is metals-and-basketball tycoon Mikhail Prokhorov, who under certain circumstances could be prime minister.
Here are my guesses: President -- Medvedev. Prime Minister -- Putin. Date -- Dec. 9, 2011. Send your own to me, using the email link just above my photograph, in the About This Blog box on the right side of the blog.
The casino moves faster than expected: We knew that oil traders wouldn't stand by and allow the United States and other oil consuming states to think they could bring some order to volatile prices, as the U.S. suggested a week ago. But we didn't suppose that traders could or would move this fast. On June 22, the price of oil closed at $95.41 a barrel. The following day, it plunged to around $90 a barrel when the U.S. along with other members of the International Energy Agency pledged to sell 60 million barrels of oil into the global oil market from their strategic petroleum reserves; it appeared as though consuming states were drawing a line in the sand, and saying they would pay no more for oil. They would drive the price down by making the market more uncertain for traders. But, as we discussed that day and Monday, traders were bound to perceive a dare, and to engage in some brinksmanship. They would make clear that the oil-consuming states were not prepared to keep intervening in the market. And that's precisely what happened. As if to make a point, the price closed at $95.42 yesterday, or a penny above the level just before the intervention.
An official from the U.S. Energy Department says that traders have snapped up the 30 million barrels that the United States offered up for sale, Reuters reports. One reason is that it's light, sweet oil, the type that Libya producers and has been in short supply on the global market. Yet Bloomberg's Paul Burkhardt writes that some of these barrels are destined not for U.S. vehicles, but for U.S. storage tanks. In another gaming move, traders will hope to sell the volumes on again at a profit. (Update: In this document forwarded by an alert reader, Barclays Bank is attempting to snap up 200,000 barrels from yesterday's SPR sale at $104.97 a barrel. If successful, Barclays at today's prices would be able in this case to flip the volumes for an immediate profit since the curent premium for light, sweet crude is about $14 a barrel above the price of U.S. benchmark West Texas Intermediate.)
The takeaway is that oil prices will not moderate through sleight of hand, such as the injection of strategic reserves onto the market, or even Saudi Arabia's planned addition of a half-million barrels a day or more to the global mix. The reason is that traders will always look to demand, and spare production capacity to meet it in a fix. That is, should there be a devastating hurricane, a new Arab Spring uprising, or a well-placed war, is there sufficient unused production capacity to make up for lost volumes? So we are talking a need for a continued rise in Brazil's reserves; more production from the U.S. Baaken and Eagle Ford shales; and so on.
The Gulf of Mexico blame game: Was BP entirely at fault for the blowout of the well it operated in the Gulf of Mexico until April of last year? Pretty much, at least according to the court of public opinion and, thus far, the actions of authorities. But at Bloomberg BusinessWeek, Paul Barrett has a cover story next week laying out the case that Transocean, BP's rig contractor, is ducking what should be shared responsibility. Of the 126 workers aboard the Deepwater Horizon when it blew up, 79 were on Transocean's payroll, Barrett reports. These Transocean workers were carrying out the drilling operation. BP was ultimately in charge -- it called the shots and made the big decisions -- but it was Transocean's practices and expertise that made the rig go. The undertone of piece is the appearance of unseemliness in Transocean's rejection of any responsibility for the blowout, which killed 9 of its employees; a week ago Transocean issued a report laying blame squarely on BP's shoulders. Barrett draws a portrait of a company whose strategy in this case is driven by the bottom line -- if it isn't found absolutely inculpable, it could be driven out of business by the cost of the billions in payouts owed to victims. Therefore, it is shedding all blame onto BP's shoulders.
Dmitry Astakhov AFP/Getty Images
What ails Russia? In large part it is Russians themselves, says President Dmitry Medvedev. In a penetrating interview with the Financial Times, the best I've seen with the 45-year-old leader (abbreviated video here), Medvedev describes his economic program for transforming the world's largest country, but says that, ultimately, Russians need to look in the mirror. "Our main enemy is inside us -- in our perceptions, our habits and cumbersome bureaucratic apparatus," Medvedev told the newspaper. "Indeed, if we manage to overcome these habits, reform will be more successful. I mean, one has to admit that we have a strong paternalist thinking. It goes for many people and even statesmen." He said:
For a variety of reasons, people in this country invested all their hopes in the kind Tsar, in the state, in Stalin, in their leaders, and not in themselves. We know that any competitive economy means reliance on oneself in the first place, on one's own ability to do something. This is the challenge every person has to deal with. Certainly, this is not done by a decree or with a stroke of the pen, but this is the problem anyway.
One cannot get carried away with the significance of Medvedev's remarks, since unlike prior Russian leaders who thought critically and fundamentally -- Mikhail Gorbachev; Yuri Andropov; and, reaching far back, Peter the Great -- Medvedev isn't actually in charge of either the nation's or even his own destiny. Prime Minister Vladimir Putin occupies that role.
Yet that is precisely the point. If one presumes that Medvedev relies on Putin's good will for his position, then one also must assume that such remarks do not come from left field -- Medvedev has first market-tested them in rough or polished form with Putin. This does not mean that Putin agrees with all of Medvedev's thinking. But he does not object to Medvedev so expressing himself if he wishes. My colleague Josh Keating suggests that at least some of the photographs of these fellows demonstrating camaraderie are so much empty staging. But it seems to me that you get what you see -- Putin and Medvedev actually do collaborate in a respectful manner; they agree on a ruling strategy, with Putin holding the deciding vote; and they genuinely are fond of each other. While the photos are not all spontaneous and must be opportunistic, I think the men themselves are not faking. Read on to the jump.
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Russian election clues? A couple of weeks ago, I ventured a bet that, contrary to the conventional wisdom, Russian President Dmitry Medvedev will run and win re-election in next year's elections; his mentor, Prime Minister Vladimir Putin, will opt to keep his protégé in place, I wrote. While for a variety of reasons I still think that is the case, it's understandable why many think otherwise: Putin is throwing up a lot of conflicting signals. Take his decision to eradicate much-hated and bribe-laden car inspections for the remainder of the year, worth up to $300, writes Will Englund at the Washington Post. And what about Putin's announcement of a $285 billion program to rebuild Russia's ramshackle roads, another bane of the country (that's Moscow traffic pictured above)? Is Putin announcing such programs from a simple sense of good governance? According to Robert Coalson of RFE-RL, the way Russia's strongman is presiding over the affairs of the ruling United Russia party, he is sending "the strongest signals yet that he intends to return to the presidency in 2012."
This is entertaining -- and convincing -- to be sure. But that's the point. Putin doesn't need to convince anyone -- all of Russia and the rest of the world know that the job of president is his for the taking. So why the show? Because he wants the accolades, the hero-worship, the pleading crowds and so on, but while pushing matters to the brink, in the end he will, for the good of the nation of course, step aside (technically, that is) and maintain the status quo. The system works the way it is. Ask yourself this question: why in the last month (as the Moscow Times rounds up in an editorial) have the killers of Stanislav Markelov been imprisoned; has imprisoned oligarch Mikhail Khodorkovsky, while not released, been permitted a fair hearing on state-run NTV television while announcing a decision to appeal; and has the alleged triggerman of murdered journalist Anna Politkovskaya been captured and charged? Is it because Medvedev is acting against Putin's wishes?
This is where it's possible to lose one's way. What seems dissonant in the tandem in fact isn't. It happens because Putin wants the balance that Medvedev provides. Not incidentally, Medvedev is content with this state of affairs as well. One way to understand Medvedev is as simply another expression of Putin -- that is, even if Putin stepped completely out of the picture, Medvedev would not turn Russia into bastion of liberalness. Rather, when Medvedev's Russia undoes some of the injustices in the country, "what might appear to be the dismantling of Putin's legacy is not a dismantling at all," the Moscow Times editorial board writes. It said:
Khodorkovsky, even if given parole for good behavior, will not be acquitted. Investigators might have found Politkovskaya's killer, but we are unlikely to ever know who ordered the murder. Ultra-nationalism is still not being fought outside the courtroom. And thousands of other murky cases -- such as the death of lawyer Sergei Magnitsky or the beating of Kommersant reporter Oleg Kashin -- have not been properly investigated. Most important, the power vertical, along with its creator, is as strong as ever. Medvedev may stay in the Kremlin without tackling these issues. But if a handful of high-profile cases is all that he has to offer in terms of political reforms, his second term in office will differ little from Putin's policy of status quo. A second Medvedev term might then be best described as 'modernized stagnation.'
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Bets on Medvedev: We have held back on making a call on the 2012 Russian presidential elections given the uncertainty and the many months before the actual date. But Stefan Wagstyl at the Financial Times has taken the first leap, so we will too. Like Wagstyl, we expect President Dmitry Medvedev to stay on for another term; we do not foresee Prime Minister Vladimir Putin returning to power -- at least just yet. Stefan explains his thinking as simply that "the current division of labor has served the two men and the country reasonably well," and why mess with success? There could be more, such as that Putin grasps that Russia needs more -- much more -- than the old, tough ways. It needs to finally do what it takes to make Russia innovative. Whatever the case, the signals are there for a continued Medvedev presidency. It's been clear from the outset that the Putin-Medvedev, senior-junior partnership (in that order) is a genuinely collaborative one. There naturally are disagreements, but they are settled and life goes on. The methodical and cautious Medvedev does not throw public tantrums, nor does he bet short. Medvedev is demonstrating decisiveness -- in Libya, on the BP-Rosneft deal -- because he actually does expect to stay on. That Putin did not step in and rescue state-owned Rosneft -- and Igor Sechin, his right hand man -- shows that he, too, feels the right man is in the Kremlin. Putin will retain his overarching influence. But our bet is that there is no shift in the tandem.
... and more really risky oil deals: The immediate message of the apparent collapse of BP's attempted coup in Russia is that Kremlinology is alive and well -- we still puzzle over what is going on underneath Churchill's carpet. But the larger lesson is that BP was not actually acting hastily -- while embarrassing, CEO Bob Dudley was simply the most visible exhibition of a trend that we will watch play out for the coming two and more decades. That is a shift to riskier and riskier deals in riskier and riskier places, with the prize of the accustomed tens of billions of dollars in profit to the winners.
Russia, writes Matthew Hulbert at EurActiv, is actually "one of the few sensible bets" for a Big Oil company among a suite of opportunities around the world including east and west Africa, ultra-deep water and the various parts of the Arctic. "The 'Arab Spring' is a reminder that the wagers are getting higher and higher for upstream players," Hulbert says. At the Financial Times, Christopher Thompson writes that in fact the notion of risk has wholly changed, with a surge of investment in frontier plays including into badlands such as Somalia.
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Are we to believe President Dmitry Medvedev, who says that the collapse of BP's blockbuster oil deal in Russia is all a simple matter of the rule of law -- that CEO Bob Dudley was violating a contract, and that isn't done in Russia? One might reply, Since when? But this is what is baffling about the latest turn in BP's long saga of suffering -- one does not know whether Russia has suddenly gone legal, or whether we are watching a dimension of the run-up to the country's 2012 presidential election.
For BP, this was all about recovering its mettle from last year's disastrous Gulf of Mexico oil spill. Earning street cred in Big Oil isn't the same as a lot of other businesses -- there is comparatively little in the way of razzamatazz, branding, or product breakthroughs. Instead, it's all about being quick off the mark in acquiring property and finding hydrocarbons. Yet even there, as BP has learned, the going isn't what it used to be: Dudley was plenty fast pivoting off the spill, and obtaining a superlatively rich new deal to help develop Russia's Arctic. The details were tantalizing -- already the most active Big Oil company on the Russia patch, BP would double-down by forming a marriage-type arrangement with state-owned Rosneft. The two companies would swap a significant number of shares, and then explore the extravagantly rich oil fields of the Arctic. Tens of billions of barrels of oil were at stake, and at once BP seemed to be back in the game.
Only, BP already had a Russian spouse -- four oligarchs collectively known as AAR -- with which it had an exclusive, first-right-of refusal agreement for any dealings on Russian soil. AAR obtained European injunctions against the deal, so Dudley had to scrape and grovel in order to try to persuade AAR to be bought out, and Rosneft to help provide the funds (one reason being that Prime Minister Vladimir Putin -- superior in rank to Medvedev -- would never allow a foreigner to own 100 percent of a Russian oil company; the other reason being that, even if Putin would, BP didn't have $30 billion in cash at its disposal, apart from the $30 billion and more that it's collecting to pay off victims of the spill).
As of Monday night, BP and AAR had agreed on a $32 billion buyout (Sylvia Pfeifer and Catherine Belton of the Financial Times have assembled a good chronology). But in the end, the deal was upended by deep-seated mistrust between the Russians -- those at Rosneft, and the four oligarchs. In terms of the sequence of events, AAR wanted its cash first, before BP and Rosneft proceeded with their tie-up; Rosneft rejected that idea, and wanted the oligarchs to be paid only after the rest of the deal went through. They failed to bridge the gap, and the deal died.
Dmitry Astakhov AFP/Getty Images
The upside of BP's latest brawl in Russia is how much we are learning about how the place works.
As you recall, in January BP CEO Bob Dudley trotted out a bodacious deal in which BP and Russia's state-owned Rosneft would swap shares -- thus owning $8 billion in each other's company -- and go on to develop the completely untapped motherlode of oil underneath the Arctic Sea. Only, this aggravated BP's Russian partners -- four oligarchs collectively calling themselves AAR -- who said BP had violated a monogamy covenant, and persuaded two European tribunals to halt the deal. One immediate victim was Igor Sechin, Putin's right-hand man and the holder of dual posts as deputy prime minister and Rosneft CEO. When the deal went south, Russian President Dmitry Medvedev kicked the corpse (pictured above, neither looks thrilled to be in the other's company) with an order prohibiting Sechin or anyone else from holding a simultaneous position in government and a state-owned company.
Though Medvedev's was a wholly reasonable directive, inRussia conflicts of interest can be a novel and even controversial idea, especially when it regards members of Putin's entourage. So it is that one prominent narrative out there right now is that the whole affair demonstrates not ethics, but Medvedev's political strength -- the rug, Reuters suggests, has been partly pulled out from under Putin. Medvedev's purge of Putin's allies at state-owned enterprises, it is said, is all part and parcel of Medvedev and his own allies preparing him for a run at re-election next year.
We have two things going on at once. One is that BP's Dudley wholly misunderstood Russia's apportionment of power (That's not a categorical black mark, because so did Sechin.). In this video, the Financial Times' perspicacious John Authers and Vincent Boland say that the Rosneft fiasco is as bad for BP as was last year's Gulf of Mexico oil spill. Dudley had perceived a company saver, but instead derived yet another symbol of BP's executive mismanagement. Now, not only does BP seem unlikely to capture prize Arctic acreage, but Dudley has seriously annoyed his Russian partners in the TNK-BP partnership, which comprises a full quarter of BP's total global reserves.
BP cannot afford to jeopardize the partnership. It is very simple. Unless Dudley gets his Russian affairs under control by a Thursday deadline, both BP and he -- emphasis on the latter -- are in real trouble. Chris Weafer, the uber-analyst at UralSib Bank, expects a deal to be cut, if not voluntarily by the principals in the deal, then by force -- that's how important the stakes are."There will be a lot more pressure applied this week," Weafer wrote in a briefing he emailed me, "and if no agreement is reached by Thursday, then [there will be] direct intervention by the state." But if these steps still don't work, among the dangers, some say, is that again BP risks a hostile takeover. This piece from the Daily Telegraph in London suggests that former BP CEO Tony Hayward may lose his current position as a board member at TNK-BP. But the biggest news right now is that Dudley could lose his job. So poor has his judgment and execution been. Read on for the Russian political angle.
As we begin another week of turmoil in the Middle East, and countries further afield batten down the hatches in an effort to preclude being next, here are some of the things we don't know:
-- Whether oil prices are going up to $220 a barrel (and $5 at the pump), or down to $70 a barrel and more like $2.50 for a gallon of gasoline in the United States;
-- Whether Saudi Arabia really increased its oil production last week, or if the truth is a bit different;
-- And, finally, whether Russia's gentleman president, Dmitry Medvedev, has been rummaging through Vladimir Putin's archive of paranoid off-the-cuff remarks, and truly does not grasp what is happening around him.
It was Nomura Securities that, in the Goldman Sachs style of hype-as-part-of-corporate-promotion, last week forecast oil prices of $220 a barrel. Nomura predicated its forecast on Algeria devolving into chaos, and shutting down its 1.8 million-barrels-a-day of oil production. Since that would be on top of Libya's current cutoff of around 1 million barrels a day, the combined loss to the market would rub right up against the industry's total spare production capacity of 4 million barrels a day. Hence, prices would rise steeply because at once we would be back to 2008, with almost no margin for error for any other mishap like a hurricane, a Nigerian pipeline explosion -- or more Middle East unrest.
Yet, why the figure $220? Do we go up in fifths now? We side with the cooler-headed Dave Kansas at the Wall Street Journal, who calls Nomura's projection "fraught."
But are we headed as low as $70 a barrel either? That's what Almir Barbassa, the CFO of PetroBras, the Brazilian oil giant, told MarketWatch. For the reason he says that, read on.
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It's again the time of year for a gigantic row over utility arrears in the Russian space. When Russia, Ukraine and Belarus engage in this game of roughhousing -- as they have every year since 2006 -- they might find it fun, but large swaths of Europe suffer, because their gas supplies invariably get cut off in the ruckus.
So it is now in Belarus. Over the last two days, Russia's natural gas giant Gazprom has cut off 30 percent of its supply to Belarus over a disputed $195 million utility bill that, according to Gazprom, has accumulated since March. In response, the Belarusians say Gazprom owes them $260 million in unpaid natural gas pipeline transit fees, so that it is they, and not Russia, who is the aggrieved party.
Here is Reuters TV on the latest spat.
Gazprom supplies about 25 percent of Europe's natural gas, and a fifth of that is shipped by pipeline through Belarus. In response to Gazprom's actions, Belarus President Alexander Lukashenka ordered all of Gazprom's shipments to Europe suspended. He referred to the tit-for-tat as a "gas war." Today, Jerzy Busek, the president of the European Parliament, said that already the dispute has reduced gas supplies to three European countries - Germany, Lithuania and Poland.
In a telephone news conference today with reporters, Gazprom spokesman Sergei Kupriyanov said that the bill claimed by Belarus reflects higher transit fees that the country is seeking for the natural gas shipped across its territory. Gazprom wants to pay the bill, Kupriyanov said, but Belarus won't accept it. The transit debt "is being used by Belarus for leverage in the negotiations," Kupriyanov said.
Similarly, Belarus's debt reflects a hike in the price that Russia wants for its natural gas. Belarus was charged $150 per 1,000 cubic meters of gas last year, but Russia raised the charge to $169.20 in the first quarter of this year, and $184.80 in the second. Belarus has been paying its gas bill, but at last year's rate. The $195 million debt represents the difference in price Russia is seeking.
Many questions have been left unanswered, principally why the Russians, the Belarusians and the Ukrainians don't take their disputes to international arbitration rather than annually going through another spectacle. Edward Chow, a former Chevron executive and a fellow at the Center for Strategic and International Studies, says he has the following questions of Gazprom:
Does your supply contract require international arbitration of disputes? Then, why the cutoff? Belarus claims it paid according to the previous gas price, not the higher price as agreed. Did you accept those lower payments? Does Gazprom not have a similar option on the transit fee?
The row has not been without humor. Lukashenka offered to pay off the gas debt with barter, to which Russian President Dmitry Medvedev replied that Gazprom would not accept "pies, butter and cheese." (Just out of curiosity, is there any other major president on the planet who handles the gas bills himself?). Lukashenka understandably took umbrage at the remark. "I am sorry, when they start humiliating us with either cutlets or sausages or butter or pancakes, we perceive this as an offence to the Belarussian people," the Belarus president said.
Food jokes, it seems, are a step too far in the utility wars.
Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.