Power and Profit

Although he is wrong about the Eighties (imagine if there were still lots of publicly owned mines on this island that stands on coal), Mark Almond writes:

They were smiling but the picture was of a funeral ceremony. Looking on from the shadows as the American CEO of BP and the representative of the Russian state oil company, Rosneft, shook hands on their dramatic link-up was our Energy Secretary, Chris Huhne. His role was as undertaker at the wake of an independent British energy policy. Once, the half-hidden face of a British Minister at the making of such a deal would have signalled who was the real power-broker. Generations of Arabs and Iranians have grown up with the idea that BP was as much an integral arm of the British state as MI6. Those days have long gone. Now a British Minister is flattered to be a bystander at the deal of the century. Only dogmatic free-marketers celebrate the impotence of their government in energy politics. What these enthusiasts for global free markets overlook is that neither the United States nor Russia operates according to their ideals.

Nor did Britain on its way up in the world. A century ago, the very creation of the oil company which was to become BP was the work of Whitehall rather than the market. Winston Churchill was godfather to the development of the Anglo-Persian oil company because he was First Lord of the Admiralty and knew that the Royal Navy would need oil to fuel its warships in the future. The British taxpayer was tapped to invest huge sums in drilling and processing because the Government recognised before 1914 that oil would power a motorised economy in the 20th century. For all her patriotism, Mrs Thatcher set in train the outsourcing of UK plc by selling off HMG’s very profitable shareholding in BP in 1987. Unlike loss-making coal mines or steel mills, those shares really were the family silver.

Downsizing the State sounded a good idea back then. It is still the mantra of Tories today. But in the cut-throat world of energy politics it is the power of the state which determines the fate of companies. Now, five per cent of the shares will be in the Kremlin’s hands. That’s just the start. I suspect Vladimir Putin will show a greater sense of their strategic value than our politicians. Sadly, for our Government’s revenue, the new Russian shareholders are no more likely to want to pay corporation tax here than other ‘British’ companies which have relocated to tax havens. Maybe BP will get access to Russia’s Arctic Sea oil and gas resources but the British public will pay for them – and the profits will increasingly go non-dom.

Economic nationalism is out of fashion here but not abroad. Much of BP’s desperation to deal with Russia, despite its well-publicised problems doing business there in recent years, comes from the US backlash against the company after the oil spill in the Gulf of Mexico. From President Obama downwards, Americans reacted to the disaster in the Gulf with a rousing display of good old-fashioned nationalism. Not since the British attacked New Orleans in 1814 had Yankees expressed such anti-limey feeling. All BP’s efforts to rebrand itself as ‘Beyond Petroleum’ with feel-good environmental projects went down the plughole as Obama blamed British Petroleum for the disaster. The role of US contractors was quietly ignored as the oil slick shrank the value of BP’s shares and the British Government’s tax revenue.

Americans have reacted badly to the deal with Rosneft. They are suspicious of the Kremlin’s plans to use energy as a way of binding America’s European allies into dependence on Russia for oil and gas. Already Germany’s ex-Chancellor, Gerhard Schroeder, chairs a pipeline company managed by an ex-East German spy who knew Putin during his KGB days. Italy’s Silvio Berlusconi is accused of having business interests in bringing Russian energy to his country. Of course, the United States imports next to no Russian energy while Britain and its EU neighbours need energy imports and are nearer the Kremlin’s supplies. Britain’s North Sea oil and gas are declining fast. How will this country afford to import most of its energy on top of so many other things? Our trade deficit is grim enough now but in two decades the national overdraft will be floating – or rather sinking – under a slick of imported oil. Yet Cameron, Clegg and co seem no more able to develop a national strategy for the coming energy crunch than Blair or Brown before them.

Ironically, it is post-Communist Russia which looks as though it has learned the uncomfortable lessons of what made Britain great just as our leaders seem anxious to forget them. To modern British eyes, Russia’s use of its vast natural resources to promote the state’s interests seems sinister. The boss of Rosneft, Igor Sechin, another ex-spy who is both Vladimir Putin’s key aide and a businessman, symbolises the mixing of power and profit. It seems wrong to us. But it is effective. The Kremlin’s cocktail of powerful energy resources may be unique in our time. But the buccaneering spirit of Putin’s Russia would not seem out of place in the emerging Great Britain 300 years ago.

Corruption inside a political elite can be self-destructive, as Tunisia’s experience shows. But when the ruling class mixes personal profit with pursuing national goals sadly corruption can get things done. Our first Prime Minister, Robert Walpole, managed the fallout of the original stock market crash, the South Sea Bubble, very well, but he also used the Treasury barge to smuggle goods up the Thames past his own customs and excise.

BP in its Churchillian heyday was the last in a long line of state-sponsored profit-making companies of which the East India Company was the most famous. That company built the core of the British Empire by converting trade with India into power. Few modern Brits would advocate that now, but the rest of the world is not so pure. To the Kremlin’s power players, business is part of the poker of politics. Energy is just a pawn in the great game of geo-politics. Just because Britain’s elite has retired from the game doesn’t mean others won’t go on playing it.