Rosneft: The Real Reason Why Putin Is Undermining Elections Around The Globe
As Russia’s economy falters, Putin’s actions smell more like desperation than ambition
Rosneft. It’s a word that keeps popping up repeatedly. We’ve heard its echoes in hearings on the hill, in investigative reports on Russian collusion, and in dossiers and intelligence briefings. Much like Citizen Kane’s Rosebud, Rosneft is the key to understanding Russia’s influence campaigns in Europe and America. And it’s been hiding in plain sight.
To unravel Rosneft, we must go back to the origins of this hugely influential state-owned corporation, now the largest government controlled oil company in the world. Russia’s economy is inextricably tied to the future of oil and gas. Energy exports make up a disproportionate amount of income for Russia, with oil and gas comprising about 40% of the country’s budget revenues.
Rosneft grew out of the consolidation of several privately-owned oil companies in 2004 and is helmed by Igor Sechin, Putin’s right-hand man. Sechin has been referred to as “the scariest man on Earth,” and his loyalty to Putin is absolute. Since the 90s when he was Putin’s appointed duffel bag carrier and Deputy Chief, Sechin has been the jelly to Putin’s peanut butter, the mac to his cheese. And in 2004 Putin gave him a hell of a present for his faithful service. Putin gave him Rosneft.
Corruption. It does a country good.
In 2003, Mikhail Khodorkovsky, the head of Yukos oil and formerly Russia’s richest man, was charged with corruption and his assets seized, gobbled up by what became Rosneft in 2004. In 2014, Sechin did it again, this time to Vladimir Yevtushenkov, who was accused of money laundering and his shares in oil producer Basneft nationalized. Yevtushenkov was later cleared of charges and awarded one billion in damages by a Russian court.
This is a tactic Putin and his cronies have used again and again in dismantling the Russian oligarchy and political opponents. A sting is arranged, charges are brought, assets are seized, and people are jailed or exiled while Russia’s coffers grow. In this case, a series of orchestrated corruption scandals gave birth to Rosneft and began the rise of Igor Sechin as one of Russia’s most powerful men.
Oil Boom and Bust
Russia owns 75% of Rosneft and partner BP controls 25% of the shares, but that’s increasingly changing. Oil prices are in free fall and sanctions imposed after Russia’s annexation of Crimea and invasion of the Ukraine have been crippling the economy. In the last two years, Rosneft has turned to privatization, selling off assets and buying up other interests to diversify and reduce risk. In 2014, the company’s botched $15 billion bailout had to be rescued by foreign investors in China and India. Rosneft’s last quarterly report indicates profits have fallen 77%. The economic forecast for Rosneft, and by default, Russia, is looking stormy. Very stormy, indeed.
It didn’t all used to be doom and gloom for Russia. Once upon a time, the country’s energy prospects looked bright. Before sanctions were imposed by NATO in 2014, Rosneft had struck a pretty lucrative deal with Exxon-Mobile which got tied up in the sanctions. Sechin’s partner in the 500 billion dollar venture? Rex Tillerson. As the CEO of Exxon-Mobile, the current US Secretary of State got pretty cozy with Rosneft. While at Exxon, Tillerson persistently lobbied against the sanctions on Russia, making multiple visits to the White House in an effort to ease them. Good ole Igor still talks about coming to America someday and riding motorcycles across the country with his buddy Rex. Tillerson, who was awarded the “Order of Friendship” by Putin himself in 2013, stays quiet on the subject these days. But one has to assume that Sechin will be overjoyed to see his friend Tillerson again in April, when the US Secretary of State announced he’ll skip the next NATO meeting to visit Russia instead.
Gee, wonder what they’ll talk about.
Desperate times call for desperate measures
Experts estimate sanctions have cost Russia over 100 billion dollars, and if the country’s foreign policy is any indication, Putin hasn’t taken this lying down. Kremlin influence campaigns aimed at infiltrating governments across Europe are an effort not only to satisfy Russia’s geopolitical ambitions, but a survival tactic. Russia desperately needs friends at the table in NATO, where their aggression towards sovereign European countries has alienated them from the majority of the free world. Putin wants to lift sanctions so he can build pipelines and partnerships that will get the economy pumping on all cylinders again.
Without a revitalized Russia, currently in the grips of a recession, Putin may face more opposition than he’d like in the election next spring. So he’s rolled up his sleeves and gotten to work, undermining elections and hacking facts to install autocrats friendly to the Kremlin across Europe. Sowing seeds of discontent not only allows Russia to exploit divisions for political gain, it enables them to seize economic opportunities. After an attempted coup and the assassination of a Russian ambassador in Ankara late last year, Turkey’s president was eager to reestablish friendly relations with Putin. On March 10th, Turkey signed an agreement to import 11% of its fuel and 6% of its diesel exclusively from Rosneft.
Europe isn’t the only corner of the world that Rosneft is looking to sink its teeth into. The company recently announced in return for acquiring India’s Essar Oil, the Indian government would buy defense missiles and helicopters from Russia. And perhaps most troubling of all, Rosneft muscled its way into controlling a large portion of Venezuelan owned oil company PDVSA’s debt. Sinking under the weight of a global oil slump, PDVSA has offered up a Delaware Citgo refinery to pay off Russia. This proposed sale has alarmed Congress and prompted a call for investigation by the Committee on Foreign Investment in the United States. Russia getting its hands on US oil despite sanctions is looking likely given the current administration, whose ties to the Kremlin are multiplying daily.
Rosneft is at the heart of another sale that has faced increasing scrutiny in the last few weeks. In December, Sechin announced that the company would give a 19.5% stake to Qatar and Swiss oil giant Glencore. This was the largest privatization effort since the 1990s, valued at 10.2 billion Euros, but it wasn’t all the zeros in the price tag that garnered attention. The percentage of interest in the company aligned very neatly with numbers in the dossier on Trump compiled by ex MI6 agent Christopher Steele. The infamous dossier alleges that Trump’s associates were set to receive a large portion of shares in Rosneft in return for lifting sanctions against Russia. The sale, occurring just a few weeks after the election and coinciding with a visit to Moscow from Trump associate Carter Page, raised more than eyebrows. It sent journalists all over the world scurrying for the records of the offshore Cayman Island fund that had suddenly assumed a significant share of the deal and disappeared into the shadows. The buyer remains a mystery, but there has been significant speculation that Carter Page himself brokered the Rosneft deal for Trump and associates and it’s become a subject of inquiry in the ongoing FBI investigation.
At this point, Putin looks like a masterful puppeteer but he’s been careless and the strings are starting to show. Economists report that Russia’s Reserves and National Wealth Fund are significantly depleted and the country’s economy is at 0% growth. Russia is more show than substance these days, and Rosneft’s trickling oil boom going bust is just the beginning of the story.