The Oil and the Glory

The Weekly Wrap – March 25, 2011

The Weekly Wrap – March 25, 2011

To keep power, give it away: The autocrats of the petro-driven Middle East are discovering that ushering in democracy is not an altruistic act, but desperation politics — if they want to stay in office, there is a good chance they must dispense with the strongman act and accept truly elected representation. For Ali Abdullah Saleh, the president of Yemen, that realization came far too late; he has at most days to go in office, and possibly just hours. What about Syrian President Bashar al-Assad? Possibly next to Saudi Arabia and Iran, Syria is the unlikeliest place in the Middle East for regime change. Today, his troops fired on protesters after Assad attempted to assuage public unhappiness by promising to end 48 years of martial law. Yet more unrest there seems probable as thousands poured into the streets regardless, and reports are of some protesters grabbing away guns from authorities. Libya is the conspicuous outlier — short of a palace coup, Col. Moammar Qaddafi looks likely to hang on.

My colleague David Rothkopf took President Obama to task this week for a supposedly fuzzy approach toward Libya, but I don’t grasp his mystification. The best U.S. course is to allow Middle East events to take their course and not put an American imprint on them, even when they reach nail-biting stage. In the case of Libya, the U.S. rightly held back as long as possible with the idea that perhaps, perhaps the rebels might yet turn back the Qaddafi tide, but when Benghazi was about to be overrun, stepped in to create a level playing field (there is a preference for another Libyan leader, but the policy is not to explicitly overthrow Qaddafi, but to make it as much a fair fight as possible.). The U.S. rightly is not going to install the opposition, but take away the regime’s air, armor and artillery advantage. Equally incomprehensible, also here on the pages of Foreign PolicyBruce Ackerman has declared Obama an imperial president. On the other side, the chest-beaters would like Obama to be more “decisive.” Guys — take a little course in the exercise of influence and power; better yet, take a look at the nature of what’s going on in the Middle East. This era is not the time to kick down the door, guns blazing.

The rare earth blues: The Chinese are clamping down ever harder with market hindrances against exports of rare earth elements from the country, this time by raising tariffs on the 17 types of minerals. This has been an issue since last September, when Japan’s arrest of a Chinese trawler captain revealed Beijing’s ultimate soft spot (which we had thought was Tibet, followed closely by Taiwan) by triggering China’s rare earths embargo on the entire global market. But is there a crisis for the high-tech industries and armaments manufacturers who rely on them? This week, I participated in a panel discussion at the Heritage Foundation on the subject. The consensus was that, while there is a current squeeze and prices have almost doubled since last year, a combination of recycling and the fast development of new supplies will resolve it within three or so years. Australia, India, Kazakhstan, Mongolia, not to mention Alaska and California, are all acting in concert to develop new supplies.  


Read on for more on this week’s news. 


Pipeline panic: Ever since Russian Prime Minister Vladimir Putin publicly suggested that Russia will not build South Stream, a highly politicized natural gas pipeline into Europe, my email box has been filling up with announcements of the project’s incredibly robust health. On Monday, for example, Germany’s Wintershall signed a memorandum of understanding involving South Stream at Putin’s residence outside Moscow. On Tuesday, there were South Stream signing ceremonies in both Serbia and Slovenia. What is going on? Ever since George Mitchell perfected hydraulic fracturing of shale-gas deposits, South Stream has appeared to be dead (to us, anyway), along with its U.S.-backed competitor, Nabucco. If the world does make a long-term shift to natural gas and away from nuclear, that could change the playing field. Short of that, pipeline politics players will continue doing their best imitations of The Night of the Living Dead.


Lost in Russia — again: The Wall Street Journal calls it “the curse of BP.” The Financial Times says it’s “Bob Dudley’s Russian jinx.” These newspapers are referringto the geopolitical fallout of last year’s Macondo oil spill. As a result of BP’s PR catastrophe in the United States because of the Gulf of Mexico blowout, the company’s new CEO, Dudley, shifted the company’s focus away from the United States, and got in bed with Russia. To be specific, in January he did a deal in which he allowed Russia’s Rosneft to buy 5 percent of BP, and as part of the exchange won a prized position in the exploration of Russia’s hydrocarbon-rich Arctic Sea bed. That was arguably Dudley’s zenith. Then came the curse/jinx part, which is that two judicial panels have now blocked the deal based on a complaint by BP’s spurned Russian partners, four oligarchs who own half of the joint venture called TNK-BP, and bristle at BP taking on a mistress. This week, the oligarchs won the second of two judgments with the argument that they hold exclusive rights to be BP’s partners on any Russian business opportunities.

Options include for Rosneft to swap in another Big Oil company that can handle the complex Arctic drilling, or for the oligarchs to be invited into the deal. As for me, the latter option seems most rational. Next to that, the most likely outcome would be the time-honored tradition of a face-saving payoff. I have heard it on good authority that the oligarchs are prepared to sell out if the price is right — on the street, the word is that the price is about $30 billion. I emailed Stan Polovets, CEO of AAR — the acronym for the oligarchs’ corporate tie-up — who denied that the oligarchs are looking for a cash settlement. “AAR is a long term strategic investor in TNK-BP and has no plans to exit,” Polovets said. “TNK-BP is a great company with excellent management and great growth prospects.”