How Russia Falls Apart, Again

Well, the Russians are very near completing the screwing of the last major oil company that stupidly trusted Russians. Showing adeptness at numerous forms of theft - from guys with guns to bureaucrats denying work permits - the Russians have consolidated their energy resources into the hands of the government in order to fund their geo-political ambitions. I guess the biggest disappointment for me is that the last and final patsy to get the treatment were the Brits, who have historically shown more savvy. Just more damning evidence of the sheer imcompetence of former Chairman and CEO, John Browne. To the tragic legacy of basic safety giving way to green posturing, we can now add getting fleeced in Russia. It is not the case that the Brits can say, with Obamaesque wonderment, 'these are not the Russians we thought we knew.' The Brits have been in this game for a long time; they ought to know that when the Russians are down, they are deadbeats, and when they are up, they are thieving gangsters. This was not a hard one to call.

So what is the upshot? Foreign investment will continue its march toward nil. For the Russians' sake I hope they stole enough know-how off of the Brits during their brief interlude to confront the declining productivity of their Siberian fields and to tap undeveloped plays. If not, they'll have to convince the likes of Schlumberger and Halliburton to help them. I don't know the industry politics here, but I could see BP, the UK and US governments wanting to chat with any oil service company before they sign up to do big business in Russia. That's if the oil services guys even want to go there. There will be plenty of business in Brazil for years to come. Hey, and maybe even in Alaska! Bottom line: Russian production is likely to stay stagnant as a best case, more likely production declines will accelerate. Couple that with rising US interest rates (a second Fed governor has come out to say that rates ought to rise soon) and the headlong rush to find alternative fuels, we could see falling oil prices. If you are a petro-state, the combination of declining production and falling prices equals you're screwed. Of course, lots of things could happen and this analysis could be totally wrong, but I'm saying that there exists a significant probability that Russia is beginning its glidepath toward destabilization and, ultimately, disintegration. Once you're on that glidepath it is hard to break free, you can hang on if you are adept, but the destination is usually a given. Chavez is clearly on that glidepath. Russia could be next.