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Daily Telegraph: Business comment: Putin’s power play will make Russia economic pariah

By Tom Stevenson
Last Updated: 12:18am GMT 22/12/2006

By trampling on the property rights of Shell and its Japanese partners in a huge oil and gas project off Russia’s eastern coast, President Putin is playing a dangerous game. He has won this battle but risks losing the economic war.

The deal to sell Gazprom a majority stake in the Sakhalin 2 project rewards a grubby campaign by the Kremlin to wrest back control of its strategic energy reserves. No one believed the environmental grounds on which the Russian government was hounding its foreign partners but, equally, no one dared stand up to Putin’s bully boys.

As anyone who has experienced playground power plays knows, that will make the next confrontation harder. From BP to Peter Hambro, anyone with a contractual agreement in Russia should be concerned. The deals are not worth the paper they are printed on.

It has been estimated that Shell’s reserves could be hit to the tune of 10pc or more by the loss of Sakhalin. The $7.45bn the company will receive in compensation is a decent price, analysts reckon, but it is cold comfort for a company which struggles anyway to replace its production.

Shell has form when it comes to accounting for reserves and it may come to regret the aggressive way it has booked them in recent years. Today’s deal is no surprise to anyone who has watched the heavy-handed way Russia has been unwinding the agreements it forged a decade ago when oil was cheap and it needed the cash.

Jim Rogers, the legendary commodities investor, summed it up recently when he said: ‘They have capitalism there but it’s outlaw capitalism, not what you or I would recognise.’ That is a problem for foreign investors such as Shell, but it is arguably a bigger problem for Russia itself.

Yes, we need Russia’s oil and gas. But it needs our capital and expertise too if it is to continue exploiting its vast natural resources. Putin wants Russia to become an energy superpower but it’s as likely to end up an economic pariah. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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