Guest Post: Putin Is the New Global Shah of Oil

Tyler Durden's picture

Submitted by Marin Katusa via Casey Research,

Exxon Mobil is no longer the world's number-one oil producer. As of yesterday, that title belongs to Putin Oil Corp – oh, whoops. I mean the title belongs to Rosneft, Russia's state-controlled oil company.

Rosneft is buying TNK-BP, which is a vertically integrated oil company co-owned by British oil firm BP and a group of Russian billionaires known as AAR. One of the top-ten privately owned oil producers in the world, in 2010 TNK-BP churned out 1.74 million barrels of oil equivalent per day from its assets in Russia and Ukraine and processed almost half that amount through its refineries.

With TNK-BP in its hands, Rosneft will be in charge of more than 4 million barrels of oil production a day. And who is in charge of Rosneft? None other than Vladimir Putin, Russia's resource-full president.

TNK-BP has been an economic dream, producing many billions in dividend payments for its owners – but it has been a relations nightmare. The partners have fought repeatedly. In 2008 Russian authorities arrested two British TNK-BP managers amid a dispute over strategy that forced then-CEO Bob Dudley (who now heads BP) to flee Russia – and that is just one of many partnership scandals.

The writing has been on the wall for TNK-BP since this time last year, when one of the AAR billionaires quit his role as CEO of the venture and declared that the relationship with BP had run its course. Since then speculation has raged over who might buy into the highly profitable venture.

Now we know: Rosneft is buying the whole thing, in a two-part deal. In the first part, Rosneft is acquiring BP's 50% stake of the joint venture in exchange for cash and Rosneft stock worth $27 billion. The deal will give BP a 19.75% stake in Rosneft. In stage two, AAR would get $28 billion in cash for its half, though this deal is not yet finalized.

Finalized it will be, however, because the billionaires of AAR are now eager to sell, rather than remain in a joint venture with the powerful Russian oil company. Rosneft gained much of its current heft at the expense of another Russian oligarch whom Putin threw under the bus, and the billionaires of AAR know they could easily meet the same fate if they try to partner with Rosneft as equals.

If it all comes to pass, Rosneft's daily production will jump to some 4.5 million barrels per day – enough to put the Russian firm neck and neck with Exxon in the race to be the world's top oil producer. And the deal that seals it will be worth something like $56 billion – for comparison, Nike is worth $34 billion and Kraft only $27 billion. If the TNK-BP deal goes through, it will be the largest in the industry since Exxon bought Mobil in 1999.

Numbers like that deserve a little contemplation. Russia is spending a heck of a lot to buy its own oil production – smells like nationalization to me. And with Vlad Putin – the most resource-driven leader in the world today – behind the controls, I dare say we're witnessing the "Saudi Aramco-ing" of Russian oil.

Putting Putin in a position of even greater resource power can only lead one place: to high oil prices and an amazing bull market in energy.

What's In It For BP

Russia has been a pretty profitable place for BP, and while BP is tired of dealing with the drama within TNK-BP, the British firm definitely wants to stay in Russia to participate in developing the country's vast northern oil and gas potential.

 

A cash and shares deal gives BP a nice ownership stake in Rosneft, which is the best way to profit from Russia's immense untapped oil potential – because Putin will ensure Rosneft gets first dibs at prime opportunities. Depending on the size of BP's slice, the company would likely also get a seat or two on Rosneft's board. That is as important as anything else, because it would put BP personnel in regular, direct contact with Igor Sechin, the CEO of Rosneft, who has a significant say in Russian energy policy.

 

In general, a role in Rosneft would also allow BP to pursue closer ties with a Kremlin that exerts a much tighter hold on the oil industry than it did in the 1990s, when BP first invested in Russia. And anyone who wants to operate in Mother Russia has to have an inside track to the Kremlin – or you are likely to find yourself unexpectedly kicked to the curb.

Putin's Plan Is Working

Rosneft has grown dramatically in the last ten years – not by chance, but because Rosneft is Vladimir Putin's vehicle to reassert state ownership over a fair chunk of Russia's oil fields. The most famous example happened in 2003, when Putin charged privately held producer Yukos Oil with a $27-billion tax bill that bankrupted the company. The Russian president then handed Yukos' oil fields over to Rosneft, immediately boosting Rosneft's daily production from 400,000 barrels to 1.7 million barrels.

It was blatant nationalization. Yukos' chairman and founder, Russian billionaire Mikhail Khodorkovsky, was convicted of fraud and sent to prison. Overnight, Rosneft ballooned from a small producer to Russia's biggest oil company.

With a snap of his fingers, Putin had created a national oil giant, a vehicle through which he could pursue his plan to reassert Russian influence in the world by controlling other countries' energy needs. The pending TNK-BP deal is simply the next step in this plan. If Rosneft does buy TNK-BP, the state oil giant will pump almost half of the barrels of oil produced in Russia.

That is a massive amount of oil. Remember, only Saudi Arabia produces more oil than Russia; and no country in the world exports more oil than Russia. The country is an energy superpower – and by gradually nationalizing Russia's energy resources, Putin is tightening his grip on Europe's energy needs.

However, Putin knows he can't quite do it alone – his country doesn't have enough oil and gas expertise. Without the right expertise, production will tank, and Putin's whole plan will be derailed.

History proves that point. When Saudi Arabia nationalized its oil industry in 1980, the country was producing more than 10 million barrels of oil per day. Within five years, production had fallen by more than 60%.

For Putin, that's not an option. That's why he is encouraging BP to stick around – Rosneft needs BP's technical expertise in order to tap into Russia's huge reserves of unconventional tight oil and shale gas. Having BP as a significant shareholder also lets Putin continue the pretense that Rosneft is not simply an arm of the government.

But an arm of Putin's government it is, and as Rosneft gradually takes control of more and more of Russia's oil wealth, Putin's leverage on the international stage will increase. Saudi Arabia may have struggled in its early years as an oil-producing giant, but today the country hosts incredible clout on the world stage because of its ability to open or close oil spigots and thereby influence global oil prices.

Europe is reliant on Russia for oil and gas. To be in control of other nations' necessary energy resources is to be in a very powerful position – one that Putin has been working toward for more than a decade.

He has built pipelines that bypass troublesome countries and feed into needy markets. He is cornering the uranium market by owning a large amount of primary production and controlling 40% of global uranium-enrichment capacity, while leaving the United States in need of a new nuclear-fuel supplier. He has increased Russia's oil and gas production and encouraged unconventional exploration.

Gazprom, the Russian state gas company, already has Europe wrapped around its little finger. Russia supplies 34% of Europe's gas needs, and when the under-construction South Stream pipeline starts operating, that percentage will increase. As if those developments weren't enough, yesterday Gazprom offered the highest bid to obtain a stake in the massive Leviathan gas field off Israel's coast.

Gazprom in control of Europe's gas, Rosneft in control of its oil. A red hand stretching out from Russia to strangle the supremacy of the West and pave the way for a new world order– one with Russia at the helm.

It is not as far-fetched as it might seem – or as you might want it to be. If Rosneft does buy both halves of TNK-BP, it will become a true goliath within the global oil sector. All the little Davids who rely on its oil will be at Putin's mercy. Same goes for Gazprom as a Goliath in the continent's gas scene.

In this scenario, Russia could choke off supply to raise prices. Putin could play oil- and gas-needy nations off one another, forcing European nations to commit to long-term, high-priced contracts if they want secure supplies.

Or imagine this: Russia could join OPEC. Suddenly the oil cartel would control more than half of global oil production and most of its spare capacity. With that kind of clout, the nations of OPEC could essentially name their price for oil – and the rest of the world would simply have to pay.

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Wile-E-Coyote's picture

O'Barmy pushed BP into Putins hand well done dickhead.

Seer's picture

Huh?

BP = British Petroleum.  Further, one cannot both embrace AND attack nationalism (vis a vis who is in control of oil).

If TPTB want it then so it be... only party pussies fail to get this (POTUS is a fucking puppet, "dickhead").

bilejones's picture

I hate to point out the fucking obvious but who, other than the state, can have a claim to the assets previously owned by the USSR and a totalitarian monarch?

 

If there's an orderly and lawful disposition of the states assets in the future than private property rights in them might be real.

 

They are not now.

bank guy in Brussels's picture

Here is the updated Russian version of the national anthem, with same music, post-Communist lyrics, and pretty Russian military girls in the video:

http://www.youtube.com/watch?v=A71wdsTqkfM

For many of us Continental Europeans, the 'smart' idea is what Charles De Gaulle suggested long ago - a great Eurasian alliance stretching from France to Germany to Russia ... leaving Nato, dumping the Americans, and letting the Brits go with them

The world is a much better place because Putin is there ... and the RT 'Russia Today' news service too

Nozza's picture

Chuckle - I posted the original on purpose. Not sure about Putin - at least with Brezhnev we knew what/who we were dealing with.

poka

Noz

Bicycle Repairman's picture

With Putin I think you are dealing with someone a whole lot more competent than Brezhne.

Omen IV's picture

Russia & The Chinese = Mercantilism  - Putin is a shrewd guy - american vampire capitalism is no match to these two powerhouses

malikai's picture

Yea, the reason why people 'don't like' Putin is precisely because of his competence.

The reason why people did 'like' Brezhnev was precisely because of his incompetence.

It's easier to 'manage' the incompetents than it is the competents.

Skateboarder's picture

The song of the Volga Boatmen is one of the coolest songs ever. Sung by commies, but whatever - Leonid's vocals are stellar.

https://www.youtube.com/watch?v=8WD0WVL-HjE

Crassus's picture

"Hills of Manchuria" is the tune being hummed under Putin's breath.

Parrotile's picture

Lest you have forgotten, if it wasn't for "The Brits and Americans" you'd be enjoying the Third Reich right now, and there would be no Russia to suck up to ('cause they would be part of "The Greater Germany" also)

It's very instructional to review history - De Gaulle exhorting the US and UK to commit more and more "resources" to free "his" Country (whilst he was comfortably and safely esconced overseas, well away from any actual fighting). Once the war was over (and France restored to it's "rightful place at the centre of Europe" ) it was highly enlightening to note that De Gaulle was ever so keen to have Germany as part of this "New Europe", but Britain was "not quite good enough" and was denied membership of the EU by De Gaulle's deciding vote.

The British - good enough to do the fighting and dying on France's behalf, but not good enough to be a member of the "New Europe".

And you all wonder why they hate the French (who seem to run the EU primarily for their benefit - look where all the big capital projects tend to end up), and why there's such an "Anti-EU" groundswell in the UK?

ersatzteil's picture

Fun facts:

Germany invades Poland, Britain declares war on Germany. The Soviet Union invades Poland, Finland, Latvia, Lithuania, Estonia and Romania. Britain and America send massive military aid.

Britain fights Hitler to free Poland. Post war Poland is not free.

Britain fights to preserve the empire and democracy. Does not allow suffrage for colonies, loses the empire and is bankrupt. Condemns half of Europe to communism.

Also half of German casualties occured after the war in massive forced deportations and ethnic cleansing. German concentration camps in Eastern Europe continued operating under the GULAG structure, often with higher death rates than their Nazi-run predecessors. 

Randall Cabot's picture

You forgot Eisenhower's POW death camps:

"Eisenhower, in his personal letters, did not merely hate the Nazi Regime, and the few who imposed its will down from the top, but that HE HATED THE GERMAN PEOPLE AS A RACE. It was his personal intent to destroy as many of them as he could, and one way was to wipe out as many prisoners of war as possible.

 

Of course, that was illegal under International law, so he issued an order on March 10, 1945 and verified by his initials on a cable of that date, that German Prisoners of War be predesignated as "Disarmed Enemy Forces" called in these reports as DEF. He ordered that these Germans did not fall under the Geneva Rules, and were not to be fed or given any water or medical attention. The Swiss Red Cross was not to inspect the camps, for under the DEF classification, they had no such authority or jurisdiction."

 

 

 http://rense.com/general46/germ.htm    

 

 

 

 

 

caustixoid's picture

The great British/American myth:  "without us you'd all be speaking German".  If you want to be more accurate, without you all of Europe would be speaking Russian.   Russia took the brunt of the German Army for 3 years, took the brunt of the casualties and was kicking ass by June 1944.  Compared to the Germans they had more men, more tanks, more planes and MORE OIL.    De Gaulle was bitter because you let the Russians take all the slaughter and left France rotting under German rule for 3 years.  Funny that.

kaiten's picture

Fool. WWII turned at Stalingrad and Kursk. Russia single-handedly broke the Wehrmacht, inflicting 80% of their losses.

css1971's picture

I suspect that it was as much to do with the leadership's stupidity and hubris.

Anyway, the future is what matters.

Germany turned against nuclear, they will turn back in a while as their energy costs rise.

France is full on nuclear anyway.

The UK is comming down from it's North Sea high with a bump. Scabbling around for a coherent policy. Nuclear will be the solution. Eventually.

In the meantime everybody hates nuclear. Nobody wants it. It's cheap. Low. Buy.

Seer's picture

"Lest you have forgotten, if it wasn't for "The Brits and Americans" you'd be enjoying the Third Reich right now,"

Bad systems cannot survive!  Yeah, sure, they can cause havoc for a while, but in the long-run they, as any BAD system will/does, FAIL.  This has nothing to do with western exceptionalism and everything to do with Mother Nature (physics).

Thanks for playing!

ersatzteil's picture

Russia's resources with German expertise...that screenplay was written by Stalin but Hitler spoiled it on June 22, 1941. Stalin's biggest mistake was annexing Bessarabia.

YuropeanImbecille's picture

I agree, I like Americans and they are mostly good people. Sadly they are so intrenched in the zionist-satanist agenda that there is no reasoning with them.

 

I see it as cutting of a infected leg, to save the person. The Brits have killed themselves, just travel to the UK and see the filth and violence these animals live in.

Karl von Bahnhof's picture

Absolutely agree bank guy! CDG was right all along.

Actually I cannot read in french but I recommend to read Jean Parvulesco (only few texts translated to eng) and Alexander Dugin, who is new russian ideologist.

Herkimer Jerkimer's picture

Or, we could all jump on the Thorium technology that we've all been hearing about and in 3-5 years, tell them to go pound sand?

 

Like we should have done back in '73?

 

Oh… Yeah.

 

OjO

V-V

Flakmeister's picture

I wasn't aware that our transportation infrastructure ran on electricity...

Also please list all the commercial reactors running a thorium fuel cycle...

Look, don't get me wrong, thorium may be a solution but it will be 40 years before 20% of the grid is so powered and that is assuming a Mahanttan Project starting yesterday...

Too little, too late as the old saw goes...

Bicycle Repairman's picture

In my city the buses and the subway run on electricity.  40 years is plenty of time for transition even if we are at peak oil.  Which we aren't.  And it wouldn't take 40 years, either.

Flakmeister's picture

Look what the cat dragged in...

Last I checked not much of the food distribution, or freight for that matter, relies on public transit...

Well given that we have not increased crude oil production to any significant degree since 2005 I would say your statement is a wee bit misguided... (and this despite ~$2 Trillion invested in CAPEX since then)

Given a typical nuclear power plant is ~1 GW and world capacity is about 2.3 TW or ~2300 plants, 20% would be 475 plants. So I would say that you are blowing smoke out of your ass... (For comparison, world nuclear capacity in 2008 was only ~311 GW...)

Do you believe stuff just because it sounds nice or do you have any analytic and critical thinking skills?

 

Flagit's picture

im really starting to wish i did.

falak pema's picture

No wonder these Areva shills feel the future is rosy inspite of Fukushima thrills! 

Their EPR technology is shitty and not upto scratch, but competition is weak as the US is out of the nuclear game. 

Its really going to be a long slog to get humanity out from under the oil gun; what's left of it if the resulting temp rise hits 2°C +, by 2050!

Flakmeister's picture

Conventional oil is ok, tar sands much less so...

It is the coal that will do us in...

Bicycle Repairman's picture

Oh, look what the cat shat out, it's Flakmeister.  Trains also run on electricity.  Not every train, pinhead, but certainly every train in the NE corridor can.  So quite simply, you're wrong.

Crude oil production hasn't increased, so I guess it's gone.  Unless it makes more sense for the people who own the oil to leave it in the ground and not tell anyone how much is there.

You can take nuclear plants and blow them out your ass.

Clearly you believe everything the energy industry feeds you.

Flakmeister's picture

  A shining example of BR logic....

Crude oil production hasn't increased, so I guess it's gone

BR also never lets silly things like facts get in the way of whatever he is arguing...  Did you get the tickets I left for you at the Creation Museum?

Bicycle Repairman's picture

I don't believe in fairy stories like creationism, global warming or peak oil.  Oil is an important commodity, and information is power.    The powerful are not going to share any power with the likes of you.  Feel free to analyze whatever garbage they give you academics.  The result of your analysis is just another fairy story.

Flakmeister's picture

Re: Fairy tales, that is just too much coming from a guy that swears up and down that oil is abiotic...

Bicycle Repairman's picture

Says the guy who thinks that oil is dead dinosaurs.  The guy who cannot explain how oil comes from 10,000 feet below the earth's crust where nothing organic has ever existed.  How hydrocarbons exist on planets where organic life has never existed.

You're an over-educated idiot, Flakey. 

Flakmeister's picture

At 10 microns a year, how long does it take to lay 10,000 ft of sediment?

Bicycle Repairman's picture

And the sediment comes from where? Mars?

Flakmeister's picture

Do you know what sedimentary rocks are?

How old is the earth?

Bicycle Repairman's picture

You can have the last word, Flakey.  everyone has moved on and they don't care what you have to say.  I certainly don't.

Bicycle Repairman's picture

Actually, no.  This is our final conversation. 

Seer's picture

Oh, great!  All the "important" stuff is covered then, is it not?

NOT!

This is merely shuffling folks to/from the concentration, er a, work camps.  NO REAL WORK IS BEING PERFORMED HERE!

Farming and trucking.  Where's electricity happening here?  Yeah, this model is starting to crack, but this model will be one of the last to collapse (the city, high-rise, jobs, the ones serviced by your electric buses and subways, will fail first).

css1971's picture

Buy the technology from India. Wow... Isn't that a reversal?

Yen Cross's picture

 If Otool gets re-elected, Putins (remora fish), Medvedev will do the dirty work!

data_monkey's picture

~10/16 Exxon-Mobil Executive Shot Dead in Belgium http://cryptogon.com/?p=31822

bank guy in Brussels's picture

Here's another article about the shooting of ExxonMobil executive Nicholas Mockford in Brussels - with a photo of him in typical casual Brit style, alcoholic drink in his hand.

Quite a nice area of town where he was killed, this does feel like an assassination.

Report of the murder was in the Dutch- and French-speaking Belgian news some days back, seems it is taking a little time to get into the Anglo news.

Very likely a deeper story here ...

http://www.independent.co.uk/news/uk/home-news/british-oil-executive-mur...

RiverRoad's picture

Widow believes he was targeted.  And she was there.

walküre's picture

What did he know or who did he piss off is the question.

Parrotile's picture

- with a photo of him in typical casual Brit style, alcoholic drink in his hand.

Your point is??

Appearances can be deceptive, and it's been "The Way of the West" to seal the deal with a drink - just ask any Scotsman.

Or are you Bankers all teetotal??