July 28, 2008 | posted by Michael Baxter in Russia |

Land matters, and because Russia has an awful lot of land, then she matters a great deal. Not only does the land of Russia hold huge reserves of natural gas, she also has the potential to become the world’s food basket. And yet, increasingly, she looks willing to flex her muscles. Be in no doubt, the resurgence of Russia is highly significant, possibly the most significant development of the last few years.

Russia’s pride was deeply wounded when she lost the cold war, and wounded some more with the Russian crisis in 1998. And during that time of chaos, it was not only the oligarchs who got lucky, so too did western companies – companies such as BP and Shell. This led to huge resentment in Russia.

And now she is regaining that pride, and the Russian people love it when their government strides up and down the world stage, like a huge bear, towering over Europe and the countries of a former Soviet Empire.

At such a time it is important to recount the events of the last few years. So the next few paragraphs will hopefully shine some light on Russia’s thinking. Can she be trusted? Read on and make up your own mind.

The first thing to bear in mind is that Russia wants to participate in global business. She has been taking proactive steps to encourage the development of her domestic stock markets – and not all her wealthy oligarchs who live outside her borders are exiles. The likes of Roman Abramovich are still very much seen as heroes within Russia itself.

And in many ways the BP-TNK saga does not add up, the Russian partners in the business saying that BP’s management team are running the company for the benefit of BP, not its shareholders.

But whether they are right or wrong is probably not the issue. The issue is that they appear to have managed to enlist the state to their side, forcing people like Robert Dudley, the BP man who headed BP-TNK, to leave the country after a visa row.

And yet, if you rewind the clock back to June last year, another row was between the Russian state and both BP and TNK. Back then the British Russian joint venture was exploiting the Kovykta field in Russia. The snag: the company had agreed with the Russian state to supply 9 billion cubic metres of natural gas per year, but failed to get anywhere near that amount.

BP denied the failure to meet targets was its fault. It maintained that the huge state-owned Russian energy giant Gazprom wouldn’t allow TNK-BP access to its pipes. We can produce the gas, but we can’t distribute it, said BP.

At the time Vladimir Putin said: “One can talk about many reasons, including access to the pipeline system. But they knew about this when they went after the licence. They knew about these problems and the possible limitations. Nonetheless … they bought the licence.”

Eventually, control of the field was surrendered to Gazprom. But it came with a massive surge of anti-Russia publicity in the Western press, and anti-Western publicity in the Russian press.

And yet we forget that at that time the Russian part of the joint venture – the TNK part, was very much on BP’s side, and in the process aroused the wrath of Vlad too.

Today, many of these TNK shareholders have big interests in the West. Bear in mind what happened to Mikhail Khodorkovsky, Russia’s richest man before he ended up in the slammer, and you must realise that Russian oligarchs and the Russian state do not always think with one mind.

And the Russian state is denying any kind of heavy handed action. “There is no need for Dudley to arrive at the prosecutor’s office to give any explanations,” says the district prosecutor’s office.

Then again, consider what Lord George Robertson, deputy chairman of TNK-BP has to say on the matter. This is the same George Robertson, by the way, who was secretary for defence in the UK, and then secretary-general of NATO. So he knows a thing about Russian–Western relationships. He said: “It is an outrage that the Russian partners are able to orchestrate a campaign of harassment, using branches of the Russian government, including the [Federal Security Service], tax, immigration, environmental protection, and others.”

But this is not an isolated experience. There was the dispute between Russia and Shell over the Sakhalin-2 oil field. Shell had agreed a profit share with Russia when it, along with its partners, acquired the rights to the field, but then the field turned in losses, and an impatient Russia started talking about removing the licence, but came up with the excuse over fears of environmental damage.

Then there are the regular occasions when Russia gets heavy with its neighbours.

But then remember this. The BP-TNK deal was agreed under Putin’s watch. He can’t blame this one on Yeltsin, so it is harder to him to go back on this deal.

And Dmitry Peskov said: “The state remains aside from this dispute and doesn’t see itself as a part of this dispute…It still doesn’t have the slightest intention to interfere in this.”

So on the one hand, we have BP crying foul play. On the other, it’s all innocent faces on the Russian side of the fence.

Cut through this, and you are left with an unholy mess. Russia appears to say one thing and does something else. Maybe it is a temptation for Western companies to use the Russian state as an excuse.

But in the longer – term Russia can not keep hiding behind subtle nuances of the law to run roughshod over Western investments. She needs to make up her mind whether she wants Western money and know-how or not.

But from the West’s point of view it is very much in our interests that Russia does play ball. Over the next few years her massive natural resources could make Russia the most important country on earth.

Some kind of détente, is now desperately needed.