#5
BBC Monitoring
BP's deal with Russian oil firms "down payment" for compliance on Iraq - paper
Source: Kommersant, Moscow, in Russian 13 Feb 03

BP's decision to invest a huge sum of money in Russian oil firms is a political decision not an economic one, the Russian business daily, Kommersant, says. This investment is a down payment for Russia's compliance on a war against Iraq. There will be more, thanks to Iraq, the daily claims. The following is an excerpt from report by Kommersant on 13 February:

What are people in America, Europe, Israel, Saudi Arabia and at the United Nations and NATO talking about now? About the forthcoming war in Iraq. What are people in Russia talking about now? About the deal between Russia's Tyumen Oil Company and the Anglo-US company BP. But it only seems that people there are talking about war and that people here are talking about peace. In fact they are talking about one and the same thing.

A few days ago, I was talking in London with Andrew Wood, former British ambassador to Russia and now a BP consultant who, moreover, is also a member of the Russian company Renaissance Capital's supervisory council. I asked whether it does not seem to him that Russia will only lose from the war in Iraq whereas the United States will be able to control the oil market and, together with Europe, receive an economic injection in the form of a fall in oil prices. He answered that it is necessary to be realistic and pragmatic. The realist has to understand that war is virtually inevitable and the pragmatist has to operate on the premise that if it does entail any economic loss it is necessary to shape policy in such a way that there is also economic gain.

The same thing has probably been said to other people as well and not only in London. And it seems that the lesson has been learned. This column is entitled "The Bottom Line", which means that the deal between Tyumen Oil and BP is the bottom line in the Iraqi war for Russia.

Officially, of course, hardly anyone is going to say that. Certainly not: Over there, it is a question of politics: Russia's standing as a UN Security Council permanent member and as a country which "historically has its own interests and allies in the Near East"; generally speaking, "peace to the world", all the rest is "counterproductive", but what you have here is just a deal between "economic entities", even if it is an extremely productive deal...

There is also direct evidence that the BP deal with Tyumen Oil can be regarded as payment to Russia for not opposing the war with Iraq. This evidence is to be found in the reply to a fairly simple question. If it is taken as a given that war will bring oil prices crashing down the question is this: When is it more advantageous to invest in the Tyumen Oil Company's shares - when oil prices are at a record high or when prices are falling and along with them the company's assets? The decision to buy at a time of speculatively high prices is illogical from an economic viewpoint and therefore it is necessary to look for the politics.

The deal with BP is only a down payment. This is how the investment community operates: Everyone in it keeps a watchful eye on everyone else and if a big and powerful player makes a sudden movement - like the multi-billion deal between BP and Tyumen Oil - a waiting line forms to fill the gap that has been opened up. Therefore, the long-awaited time of the strategic investors is beginning in Russia. Thanks to Iraq.

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