Moscow Orientation – Day 3 – Politics and Oil

I attended a speech given by Henry Kissinger today. He spoke at the behest of a Moscow political think tank for about 30 minutes, and then took questions. I really appreciated his background as a professor – he speaks very clearly and packages his thoughts well. Even if he does have a bit of monotonic droning going on at times.

Things I learned – the changing nature of the nation-state as envisioned by the Treaty of Westphalia in 1648, and how private actors (terrorists and multinational companies) are threats to that old order. The distinction between prophets and statesmen; the former have a messianic vision and a violent urge to change in the short term, the latter understand the evolutionary nature of diplomacy. How to think about the difference between peace-keeping and peace-making. The old cost-benefit analysis of making war, and the new nuclear-age analysis, and how it has changed as more rogue states are on the verge of attaining nuclear weapons. And more.

It was a thought-provoking exercise. I absolutely loved listening to him – theoretical frameworks explained with ease, interspersed with factual examples, and personal anecdotes.

After that, we traveled to the Moscow office of Baker Botts, an international law firm. The Baker in Baker Botts is James A. Baker, the former secretary of state. The firm was founded by his ancestor in 1840. We met with two partners of the Moscow operations, and they gave us a rundown of what the legal environment is like in Russia. The bulk of the conversation focused on their main franchise – oil. We talked about government attitudes toward oil players, both foreign and domestic, and how domestic political concerns are represented in taxation policy, etc. It was an interesting conversation, but again one of those experiences that illustrate how precariously things are balanced in Russia right now – on the head of a pin slick with oil.

I put together this scary scenario. Imagine that its late 2007. Putin wants to hand off the presidency to his chosen successor. But the economy has stagnated, oil prices have stabilized or retreated a bit, and the state control of YUKOS and Sibneft isn’t panning out too well – production has flattened overall with a few assets in decline. In order to keep everyone complacent enough to vote for his man, Putin needs to buy the population off by freely distributing some more oil money – the $4 billion in 2006 has already worked its way through the system. Where does it come from, or how does the government increase its income in the light of declining oil production? Does it partner with western oil companies to attract capital investments and make its oilfields more efficient – thereby splitting profits and control? Or does it make veiled threats and, in effect, invite private players to sell to the government at a discount (a la Sibneft in 2005) in order to increase revenue just by gobbling up more of the pie?