The Oil and the Glory

The Kremlin’s take-it-slow British invasion

As we’ve discussed, one of the items brushed under the carpet in the BP-Rosneft share swap has been whether the state-owned Russian company — and hence the Kremlin — will get a seat on BP’s board of directors. The subject is important because it would be precedent-setting for a muscular petrostate such as Russia, with ...

As we’ve discussed, one of the items brushed under the carpet in the BP-Rosneft share swap has been whether the state-owned Russian company — and hence the Kremlin — will get a seat on BP’s board of directors. The subject is important because it would be precedent-setting for a muscular petrostate such as Russia, with its own ideas of what’s legal and acceptable, to be in the policy-setting body of one of the West’s most strategic and key corporate institutions. So I asked the opinion of Chris Weafer, chief strategist at Moscow-based Uralsib Bank. His reply follows.

I believe that Rosneft will take a board seat but not yet. BP has run into a lot of (expected) criticism from U.S. regulators, and investors are still digesting the implications of the move. I assume that both sides have wisely decided not to add anything further incendiary to the flame with a board seat for now. It is also wise not to swap directors until the Court of Human Rights rules on the $98 billion claim against Russian by the Menatep shareholders group, expected this spring. If that goes against Russia, then BP will take some PR flak also. I think that they will wait for these issues to calm down, and then I am 100 percent sure that we will see a Rosneft director on the BP board. This is a long-term game for both BP and Rosneft, and they don’t need to hurry.

But bear in mind that it was specifically stated that the joint-venture to explore the Arctic is only the first step in the envisaged cooperation. Rosneft harbors an ambition — shared by the government (it was so much easier when Putin was in the Kremlin as then we only had to use "Kremlin" instead of "government") — to be a global oil major. It does not want just to be a big oil producer like Aramco. Rosneft wants to be a new "Sister," like Exxon, Chevron, BP, etc. That means global projects with a presence upstream and downstream. That’s where the link with BP also comes in. Indeed, a very long-term ambition but, for sure, Rosneft will want board representation to further those ambitions.

It is only a question of how long to wait and who [the precise board member] will be. There is no reason at all why it cannot be Igor Sechin. But I would be very surprised if the first Rosneft director is Mr. Sechin. He is notoriously shy of publicity, especially in the Yukos-obsessed western press (Russian White House viewpoint), and he can just as easily get his point across via a proxy.

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