Who Knew Igor Was a Deadhead?: Sechin Plays Shakedown Street
The Sechin business model is clearly not to generate profit through canny investment, careful stewardship of capital, and containing cost. Rather, it could be called The Rent Seeking Variations.
One of Sechin’s favorite variations is to pump up a flagging bottom line by shaking down his erstwhile partners. The classic in this genre is the takeover of Bashneft at a knockdown price extracted by putting its owner Sistema under extreme legal pressure, which Sechin followed by suing Sistema for alleged misappropriations, which were only vaguely pleaded, and which if anything suggested that Rosneft was delinquent in its due diligence.
Sechin is now replaying this gambit, this time with its partners is Sakhalin I–which include ExxonMobile. Again, the allegation is lacking in specifics. Rosneft accuses the partners of “unjust enrichment” in 2015 and 2016. In a world-class, epic act of projection, Rosneft accuses Exxon Neftgaz and the others of “interest gained by using other people’s money.”
The case was filed on Sechin’s home court–the arbitrage court on Sakhalin. I seriously doubt that Exxon would have put itself into a situation where it was at the mercy of a Russian kangaroo court, so no doubt the first battle will be jurisdictional.
Sechin succeeded against Bashneft and Sistema in large part because Russia put its main shareholder Vladimir Yevtushenkov in jail at one point, and clearly was in a position to do it again. ExxonMobil and the others in the partnership are less vulnerable, and Exxon in particular is used to these sorts of bruising battles. So Igor has his work cut out for him.
For a while–during the Tillerson years–Exxon and Rosneft were chummy. Sanctions put a kaibosh on the relationship, and this is clearly a signal that they are sooooo over. Which just leaves Rosneft even more isolated than before, and unlikely to attract technology, expertise, and money from a major foreign power anytime soon absent some exchange of hostages that will curb Sechin’s predatory instincts.
The fallout for Russia more broadly is also clearly negative. This is just another indication of its opportunistic and predatory approach to foreign investment, which just will raise further barriers to such investment in the future.
Operating on Shakedown Street can be lucrative in the short run, but pretty soon you run out of suckers to shake down.
Perhaps counterintuitively to some, this is an indication of why freaking out over Russia is so overdone. Its internal dysfunction has hampered, hampers, and will hamper in the future its economic performance, and hence its potential to build capability to challenge the US in a serious way. Yes, it can be a pain, but the very aspects of its system that make it so objectionable also serve to undermine its ability to pose a serious threat to any major power.
Going up against a major like Exxon may indicate that the ‘low-hanging fruit’ has all been taken, as well as indicating that Sechin needs money in a hurry and is prepared to take a large risk to get it.
Comment by Global Super-Regulator on Lunch Break — July 25, 2018 @ 1:31 am
Some other possible interpretations:
1) The Kremlin Gangster Brotherhood is reasonably certain it can never ever run out of suckers. They can be forgiven for thinking so, what with trying so hard and failing all the time.
2) It’s just an opening move in the negotiations planned for Putin’s visit to his buddy at the White House. You know, “let’s forget all the stupid little quarrels, of course I will tell Igor to cease and desist…”.
Comment by Ivan — July 25, 2018 @ 10:36 am
@Global–Yes, the roving bandit has raped, pillaged, and burned all of the local resources, so he has to move on to heretofore unspoiled territories. But his new target is more formidable than Bashneft or even BP, so he will have his hands full.
He probably doesn’t think of it as a huge risk, though. The downside is legal cost and a loss of face. The legal costs will be relatively small, and given the absurdity of the “basket of sausages” performance in the Ulyukayev investigation and trial, Igor is obviously willing to do embarrassing things to achieve other objectives.
Comment by cpirrong — July 25, 2018 @ 11:48 am