BP (BP) And Russia: Trusting An Untrustful Partner

BP (BP) says it got what it wanted from negotiations with its Russian joint venture partner. in TNK-BP. There will be new independent directors and the current CEO will leave. There may even be an IPO of 20% of the company’s shares.

According to Reuters, "The British oil company had accused its partners of orchestrating a campaign of state harassment against TNK-BP and its officers as a means of securing control of Russia’s third-largest oil producer."

The new arrangement may be a good deal for BP, if the Russians stick to it. The UK oil company’s shares rallied on the news.

Totalitarian governments and the small groups of wealthy industrialists who are often part of an inner circle of national control have been known to renege on deals before. The most recent example is the seizer of corporate oil assets in Venezuela. That action has driven several of the world’s largest oil companies out of the country.

The Russian government sanctioned, at least obliquely, the recent pressure which local partners in TNK-BP put on their British counterparts . The CEO of the venture was forced to leave Russia, an unusual occurrence on its own.

Investors in BP will likely be satisfied with the result. The Russians in the venture will not be. They are not used to a foreign company even partially determining the fate of one of the nation’s greatest assets, in this case oil.

The Russian character has changed recently and become more hostile to the West. Russia almost certainly did not make the decision to go that direction lightly. There is not reason to expect that the attitude will not spread to most of its other relationships with countries in the EU. That does not bode well for the TNK-BP truce.

Truces are made to be broken.

Douglas A. McIntyre