The Oil and the Glory

In Russia, another crisis point between BP and its oligarch partners

A rocky nine-year oil partnership between BP and four Russian oligarchs seems to have reached a tenuous new stage, with a source on the Russian side saying the highly lucrative-but-troubled venture has "run its course." The crisis comes in one of the era’s stormiest corporate partnerships of any type, anywhere, one in which at one ...

Yuri Kadobnov  AFP/Getty Images
Yuri Kadobnov AFP/Getty Images

A rocky nine-year oil partnership between BP and four Russian oligarchs seems to have reached a tenuous new stage, with a source on the Russian side saying the highly lucrative-but-troubled venture has "run its course." The crisis comes in one of the era’s stormiest corporate partnerships of any type, anywhere, one in which at one stage current BP CEO Bob Dudley was forced into hiding.

The stirrings from the Russian side of TNK-BP, including the resignation today of the partnership’s Russian CEO, Mikhail Fridman (pictured above, left, with Russian President Vladimir Putin), suggest that it is attempting to fundamentally shake up the venture. What is not clear is whether this is simply a new phase of brinksmanship, or if, as another source close to the Russian partners said, "I think we are moving to the beginning of the end game in terms of the partnership." The partners themselves may know only that they are exasperated, and not whether this particular nadir is an inflection point. BP spokesman Toby Odone told me that the British company is "happy" with the partnership, and is not seeking to get out of it.

BP’s often-dysfunctional relationship with its Russian partners has seemed rooted in cultural miscommunication: The buttoned-up Britons and the scrappy oligarchs have appeared simply not to speak the same language of business. And when those garbled translations have evolved into crisis, the oligarchs have usually won, given their close ties to the Kremlin and greater mastery of their home turf.

The lowest of the low points was in July 2008, when matters became so fraught that Dudley — then running TNK-BP — went underground against threats to his safety. The current bout of friction goes back to January 2011, when the Russian side accused BP of betrayal by going behind its back in order to obtain a huge Arctic gas deal with the Russian state. BP was attempting a big oil coup as part of its effort to recover from its disastrous 2010 oil spill in the Gulf of Mexico. But in doing so, it violated a key covenant with the Russians, who collectively are known as AAR. At this time last year, the sides were as far as they had ever gone toward divorce court, with BP making a $32 billion buyout offer to the oligarchs. But the divorce fell apart over yet another disagreement, and the tension went on.

Fridman’s resignation, announced by TNK-BP, is a conspicuous signal that the discord subsided but hardly vanished. Fridman, one of Russia’s most successful and skilled oligarchs, is chairman of Alfa Group, a holding company. A superlatively plucky competitor, Fridman has succeeded repeatedly in tying up BP in knots during their scrapes, whether in Russia or Europe. In last year’s row, for example, Fridman appeared to be behind AAR’s winning strategy of getting at least three European tribunals to declare BP’s Arctic venture illegal.

Meanwhile, it cannot have sat well with anyone when ExxonMobil last August stepped into the breach, and itself snapped up the enormous Arctic assets at center in the brawl. And since then when Italy’s Eni last month struck its own Arctic deal with Russia. And earlier this month, when Norway’s Statoil got an Arctic deal, too.

The biggest sticking point in any divorce agreement — if that is what is being sought — may not be money. Oil prices were roughly the same last year as now, so the venture’s cash-value may not be substantially different. Instead, it may be who gets the house and custody of the kids.

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