The Squeeze: Oil, Money and Greed in the 21st Century. Tom Bower

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       SIX The Booty Hunters

      The introduction of democracy wrecked Russia’s oil industry. To secure political popularity in 1989 for ‘Glasnost’ and ‘Perestroika’ – openness and reform – Mikhail Gorbachev had diverted investment from industry to food and consumer goods. Blessed by reopened borders, free discussion in the media and the waning of the KGB, few in Moscow noticed the crumbling wreckage spreading across the oilfields in western Siberia, an area of 550,000 square miles, nearly the size of Alaska.

      Finding oil in that region after the Second World War had been effortless. Gennady Bogomyakov, the first secretary of the Communist Party in Tyumen province, was famous during the 1950s for increasing production from the easiest and best fields ‘at any price’, regardless of the environmental cost or human welfare. In that plentiful region, Russia’s oil men were blessed with outstanding science, but cursed by problems they themselves caused – poor drilling, damaged reservoirs, neglected equipment and reckless oil spills. Instead of cleaning up the mess, wells were abandoned and the engineers moved on to new fields. Rather than halting the destruction, Gorbachev’s encouragement of a consumer revolution inflamed it. Overnight the flow of money from Moscow to pay for repairs and salaries and to drill new wells stopped. Angered by Moscow’s indifference to their deteriorating working conditions, poor housing and food shortages, the oil workers in 1990 began to produce less oil, the first decline since 1945. The relationships between companies in different regions also began to fracture. Oil companies in Siberia found difficulty in persuading factories in Azerbaijan to supply equipment, especially pumps; and some oilfields in Azerbaijan, the Caspian and western Siberia refused to supply crude oil to refineries.

      After the disintegration of Soviet control over Eastern Europe, Gorbachev was confronted by national governments in Azerbaijan and Kazakhstan, both oil-rich states, agitating for independence. He remained blithely unaware of the potential problems until the country was struck by shortages of fuel. Petrol stations closed in Moscow, and airlines stopped flying. Beyond the major cities, towns were dark, visitors wore overcoats in their hotel rooms and the harvest in Ukraine was jeopardised. Living standards were falling, and there were threats of strikes. Reports from Siberia warned Gorbachev: ‘The situation is very serious. It is creating an explosive atmosphere.’ The rouble’s value began sliding, Russia’s international debt rose, and the country’s oil companies began bartering oil for equipment, or even demanding dollars for domestic sales. Russia’s daily oil production fell during 1989 from 12 million barrels a day to 11 million. ‘The atmosphere is exceedingly tense despite government promises,’ a trade union leader told the Kremlin. Gorbachev’s indecision, complained L.D. Churilov, president of the government oil company Rosneft, was causing the crisis.

      As oil production in 1990 declined towards 10 million barrels a day, Gorbachev was urged that only foreign investment and Western technology could rescue Russia’s economy from collapse. There were precedents for similar appeals. Ever since the first gusher of oil had burst through a well in Baku in Azerbaijan in June 1873, Russia had allowed foreign companies to produce oil on its territory when times were bad. After the Bolshevik revolution in 1917, and again after the Allied victory in 1945, foreign oil companies had been lured into Russia, only to be expelled as production and prices improved. In 1990, admitting that Russia’s plight was ‘catastrophic’, Gorbachev appealed to Germany for help. His choice was odd: Germany was almost the only Western country without any expertise in oil production. After his invitation was extended to all Western oil companies, many seized the opportunity as an alternative source of oil following Iraq’s invasion of Kuwait. In contrast to the turbulence in the Middle East, Gorbachev appeared to be offering Western oil companies safe investment opportunities in 12 vast areas, totalling the size of the United States, with more oil and gas than the whole of the Middle East. Only a fraction of the oil under the Siberian plains and the Arctic had been extracted.

      Despite the lack of any formal agreements, the oil companies could not resist the opportunity. Loïk Le Floch-Prigent, the chairman of Elf, the corrupt French national oil company, led the way. ‘I’m the boss,’ Le Floch-Prigent insisted, refusing to work with any Russian partner. The French were followed by ENI of Italy, another corporation tinged by corruption whose former chairman, Gabriele Cagliari, would later ‘commit suicide’ in prison, suffocated by a plastic bag. Then came the Anglo-American majors. Exxon and Mobil focused on western Siberia, Chevron sent a team to Kazakhstan, BP and Amoco competed in Azerbaijan, Marathon Oil, a second-division oil corporation based in Houston, snooped around Sakhalin, on the Pacific coast, all jostled by experts representing smaller companies. The Western prospectors had suspected that Russia’s oil industry was, like its military services, ‘Upper Volta with missiles’, an image conjured in the 1970s by a Western intelligence agency, comparing the impoverished West African country with Soviet Russia. None appreciated that the best of Russia’s geologists and engineers were as talented as their Western counterparts; but nor had anyone imagined the chaos of Russia’s oil production. Mediocrity had suffocated the flair.

      The detritus was staggering. Thousands of wells had been damaged or abandoned. By 1989, isolated from the West, Russia’s proud oil engineers had been unaware of technological developments in the outside world. Unable to drill beyond 10,000 feet and ignorant about horizontal drilling, the Russians had СКАЧАТЬ