Maidan

Hi Phil,
I'd say that BP is complicit with Moscow's (read: Kremlin's) desire to undermine Ukraine's new democratic government. I warned in one of my first posts here -- my first post, I think -- in early January that Russia is not finished with Ukraine. It isn't just my opinion, and doesn't take a genius to figure that out.

BP (British Petroleum) is, in my view, caught on the horns of a dilemma, although I do believe that BP is in position to ameliorate and ease considerably the economic war now undertaken by the Kremlin against Ukraine. It will be useful to review a bit of history here.

In 1999, in Tyumen Oblast, Russia, two main companies were producing crude oil. Those companies were Tyumen Oil (TNK), wholly Russian-owned, and Chernogorneft, in which BP held interest via ten percent ownership of Chernogorneft's parent company Sidanko. Chernogorneft hit what from most accounts appeared to be a temporary and very minor cash-flow problem. TNK insiders close to local government managed to convert that problem into a court decision declaring Chernogorneft bankrupt -- and therefore open to public auction. The auction was rigged such that only TNK's paperwork was deemed satisfactory by the same court, and all other bidders were disqualified. TNK got Chernogorneft for a fraction of its market value, and for the lowest bid.

TNK took over Chernogorneft, stripping it clean of its previous owners, including BP. TNK assured Russian courts and government -- Putin just coming to the fore at the time due to his assault on Chechnya -- that they could make the new operation much more productive and profitable. The reason: a US Export-Import bank loan was ready and waiting to provide funding to ramp up production in the Chernogorneft/Sidanko oil fields. The loan would enable purchase of equipment needed to make that happen, from a US oil company, Halliburton, whose president was Dick Cheney. Cheney engineered the Ex-Im loan to enable TNK to develop property stolen from BP and other Sidanko shareholders.

The deal was so filthy that US Secretary of State Madeline Albright picked up on the furor, especially from BP, and blocked the Ex-Im loan to TNK. Cheney countered by lobbying his former colleagues on Capitol Hill in Washington, DC, to get enough votes to override Albright's veto. In spring of 2000, against US administration's wishes, the Ex-Im loan went through and the deal was done. TNK got the loan, developed stolen property with US money, and BP and other previous shareholders were out.

Except BP has very deep pockets, and fought furiously to recover its position. The case was at the time considered the test case for the future of business investment in all of Russia. Eventually, TNK and BP came to terms. BP agreed to (and did) invest more than six billion dollars into TNK in exchange for 49% ownership. Thus, TNK-BP.

Then, the arrest of Yukos oil's president Mikhail Khodorkovsky in late 2003 for tax evasion caught everyone off guard. Oil and energy companies in Russia quickly came to understand that they must please the Kremlin, particularly Putin, to survive.

Now, the Kremlin has its sights set on Kyiv, to punish Ukraine for not electing Kremlin's man Yanukovich. This is a different motivation than what the US side has up its sleeve, which is the same as it ever was: profiteering without conscience or ethics. Dick Cheney now sits at the helm in the US White House, directing Bush on what to do at almost every turn.

Ukraine's new government is caught in a classic pincer move, where two forces intersect to slice apart a target at the intersection, unless the target capitulates to one side or the other. Moscow wants Ukraine's new government out, as soon as possible, and will upset Ukrainians any way possible to turn them against their new government. Hence the oil price attack. Western interests want to buy Ukraine's fattest assets, hence the condemnation by Western economic hit men against Ukraine's new government due to Tymoshenko's mere mention that some former state assets might be recovered from illegal deals and retained thereafter under state control for benefit of Ukrainian citizens. That is the sin for which she is being pilloried by some very influential Western interests.

Kryvorizhstal, by the way, is not the only company at issue here. It has simply become a prime example with considerable media exposure, with relatively large profits at stake. Yushchenko, as I understand, is preparing a full listing including 28 other companies up for privatization review. He and Tymoshenko are at odds over the number of deals that should be reviewed, and what to do with them if courts find the original private acquisitions (privatizations) to have been illegal. Yushchenko seems inclined to re-privatize them, whereas Tymoshenko is clearly inclined toward state ownership of at least some of them. This is no different than exactly what the US White House has said (but apparently never really meant) about Iraqi oil being the property of Iraqi citizens, with profits to be used for their benefit. Bush has said that throughout the Iraq War. Thus the US side in principle at least officially condones state-owned assets and enterprise for the benefit of any given state's (nation's) citizens. It's on the record, hundreds of times, and is grounds enough to press the US side to back off pressuring re-sale of Ukraine's former state enterprises, should they come once again under state control. "Others" will apply that pressure, which is what is visible now via such as Aslund's comments.


Nevertheless, BP is in position to at least try and step up, do the right thing, and guarantee steady production at fair, non-punitive, prices in Ukraine. Doing so, however, would likely bring the wrath of the Kremlin immediately, and BP could end up being Yukos-ized, hammered to death and losing their huge investment. But, they chose to go to bed with the devil, and he doesn't release his concubines easily, if at all. At the same time, Kremlin torpedoing BP would risk sending a death knell across Russia for foreign investment. Interesting potential stand-off, but BP can prevail and do the right thing if they insist, I believe. That, however, is very unusual in the course of conventional Western capitalism.

At the least, all things considered, boycotting BP might raise and publicize some very interesting issues and challenges -- and I think such publicity might put Ukraine's new government in a stronger position of moral authority, for whatever that might be worth versus the likes of current chiefs in Moscow and Washington when they don't get what they want.