Key Points from Books: Blowout

BLOWOUT: CORRUPTED DEMOCRACY, ROGUE STATE RUSSIA, AND THE RICHEST, MOST DESTRUCTIVE INDUSTRY ON EARTH

by Rachel Maddow

Turns out Putin made mistakes over the past fifteen years—big, fundamental, hard-to-reverse mistakes. That can happen when you try to build your country’s future on the oil and gas industry. Putin’s decisions stripped his country of its ability to compete fairly in the global economy or global politics and limited its strategic options to the unsavory list he and his apparatchiks are ticking down today. His efforts to restore Russia as a world-stage superpower no longer depend on capacity and know-how. They depend on cheating. Putin and his minions cheat at the financial markets. They cheat at the Olympics. They cheat at their own fake democracy. They cheat other people out of their democracies.

As a remedy, the Court ordered Standard to split itself into about three dozen distinct firms that would be forced to compete with one another. Rockefeller, who retained ownership in all the spin-offs, found this arrangement surprisingly salubrious. The separate companies all flourished. John D. wound up a richer man after the breakup than he was before. And even today, more than a hundred years later, the major non-state-run international oil companies we know best—ExxonMobil, Chevron, BP, Marathon—have their roots in Standard Oil and trace their ancestry directly back to Rockefeller. Standard DNA is shot through the oil industry, as are Standard’s dominant traits: a penchant for pinching pennies, an eagerness to devour and expand, a mistrust and even hatred of government regulation, a vaguely delusional sense of higher calling, and a wary respect for innovation. Worth keeping these traits in mind, because they’ve gone on to shape the modern world. They still function as a character sketch—or maybe a psychological profile—of the richest, most powerful, and most destructive industry on the globe.

the Koch family, famous for funding right-wing causes and politicians across the country. Koch Industries today is the second-largest privately held corporation in the United States, encompassing everything from commodities trading to cattle to paper pulp, but the corporation owes its honest-money beginnings to invention, to petroleum engineer Fred Koch’s discovering a better and cheaper method for making gasoline from crude oil, back in the 1920s.

Nuclear stimulation equipment was mothballed at just the moment when Americans were beginning to get good and jittery about the guarantee of an ample and never-ending supply of fuel sources. The dire prophecy of the geologist and futurist M. King Hubbert, who said that oil production would hit its apex in around 1970 and then begin a long despair-inducing decline, seemed to be coming true, at least domestically. “The era of low-cost energy is almost dead,” lamented the U.S. secretary of commerce at the end of 1972. “Popeye is running out of cheap spinach.” This realization was followed by OPEC’s surprise 1973 embargo that nearly tripled the price of oil.

Horizontal drilling allowed well operators to drill straight down, make a right-angle turn at a chosen depth, and then tunnel out thousands of yards or even miles more. Drillers could frack all along the horizontal line, which increased the potential pay zone exponentially. But it also required more slickwater.

The combination of slickwatered hydraulic fracturing and horizontal drilling was the breakthrough the oil and gas industry had been chasing for years. And it wasn’t merely an upheaval of potentially epic commercial proportions; it was a hinge on which modern history has turned. A new genie was out of the bottle. It’s hard to say, even today, if that genie is a friend. But he has had effect. Hydraulic fracking and horizontal drilling have rewritten the whole global energy equation and the future of a whole bunch of countries with it. “It is one of the most extraordinarily important, disruptive, technologically driven changes in the history of energy,” the global head of commodity research at Citigroup said of the fracking boom.

“It is time to stop living according to Lenin!” Khodorkovsky wrote in an essay right around his thirtieth birthday, as quoted by the author Masha Gessen. “Our guiding light is Profit, acquired in a strictly legal way. Our Lord is His Majesty, Money, for it is only He who can lead us to wealth as the norm in life.”

Problem was, in western Siberia, it had been too simple, for too long. Mach found it difficult to get a quick buy-in for Yukos’s new ambitions from the thousands of Yukos drillers and production pros who had grown up in the Soviet system, where managers were always guarding against the mistake of making too many tractors too fast. There was no urgency about the numbers when Mach arrived at Yukos. There was urgency about maintaining full employment, preferably until the end of time. The governing idea in the Yukos-owned oil fields was to drill new wells constantly and milk even the lowest-producing wells for as long as possible. The roughnecks in western Siberia might not eat well, but they would eat for a lifetime. Stoicism and resignation were the dominant traits in the Russian oil fields. “We never expected anything good,” a Yukos employee had once explained to Khodorkovsky. And if nothing good was coming, the priority would be to make sure that what little you had already never went away.

A few months into his new regime, President Putin called them all, including Khodorkovsky, to a meeting at Stalin’s old dacha just outside Moscow, still outfitted with the desk and daybed from which Stalin dreamed up his Great Purge of enemies and elites. With that unsubtle setting as an ambient cue, Putin laid down the new law, or more precisely, the new balance of vlast. They could hold on to their ill-gotten gains, Putin told them, and operate as they had for the last decade, as long as they offered no opposition to the new regime in the Kremlin. If anybody in the room was unclear as to the purport of Putin’s message that day, or the genuine feeling behind it, what soon happened to Mikhail Khodorkovsky ended all confusion. “Khodorkovsky didn’t know the limits,” said the chairman of Yukos’s largest rival, Lukoil. “He didn’t realize that when power went from Yeltsin to Putin, things had changed.”

Putin learned he was negotiating the deal with Lee Raymond and Raymond’s number two, Rex Tillerson, that would give ExxonMobil 30 percent of Yukos—a deal that might one day permit the American company to gain controlling ownership of the most able and impressive company in the single crucial industry in Russia. Russia might not have been a superpower anymore, it might not have had a first-world military or economy or anything else anymore, but by God Russia had oil. And now Russia was supposed to willingly give that up, too? The thought, to Vladimir Putin, must have been somewhere between nauseating and enraging. Khodorkovsky’s great meritocratic free-market ride came to a screeching halt. For my friends, everything; for my enemies, the law.

Team Putin began with a series of audits of Yukos in the weeks after Khodorkovsky’s arrest. By the time the federation’s tax accounting department was done, Yukos had received bills for back taxes—including interest and penalties—totaling $27.5 billion. This would have been a difficult bill to settle in the best of circumstances, but because Putin’s government had also frozen the corporation’s liquid assets and crippled its production operations, Yukos found it impossible to pay. Putin’s Russian Federal Property Fund provided a solution, though. The fund auctioned off Yukos’s key subsidiary, Yuganskneftegaz, which accounted for 60 percent of its annual oil production and an even greater percentage of its $36 billion valuation. The auction, which took place on December 19, 2004, lasted in the neighborhood of six minutes. The winning bid was a highly discounted $9.3 billion. The only real surprise was the successful bidder, a corporation nobody in Moscow had ever heard of—the Baikalfinansgrup. When journalists got hold of the group’s registration documents, they discovered Baikalfinans was just two weeks old and had been incorporated with an initial capitalization of $300. Its “offices” were above a vodka bar in a small building in the remote medieval town of Tver, three hours from Moscow.

Rosneft’s greatest non-Putin abettor in its campaign to devour every last bone and feather of Yukos turned out to be the American investment banking titan Morgan Stanley. Morgan Stanley had been doing business out of its office in Moscow since 1994, when Boris Yeltsin was beginning to goose the pace of privatization. When other Western financial institutions fled Moscow as the Russian economy collapsed, Morgan Stanley held firm. It kept its Moscow office fully staffed and hired a Russian economist named Rair Simonyan to run it. Simonyan’s previous job was vice president of international investment for Rosneft. Among Morgan Stanley’s crucial business operations in Moscow over the next five years was rescuing Rosneft from extinction.

“The world’s most prestigious investment bankers, lawyers and accountants are lining up to embrace the Rosneft offering,” the decorated business columnist Allan Sloan wrote in Newsweek. “But remember that financial markets (and financial professionals) are frequently blinded by money—and there’s enough money here to blind anyone.” J. P. Morgan joined Morgan Stanley as one of the four joint global coordinators and book runners while Goldman Sachs signed on as a senior co–lead manager. To put it bluntly, Rosneft’s IPO campaign ended up making the world complicit in Putin’s theft of Yukos and spread the shame of it around the globe. The markets knew the Russian government had ripped off that company and framed its leader, flat out stealing billions from Yukos shareholders. But Morgan Stanley and the markets and the investors in those markets chose to look the other way because the potential payoff was too enticing.

Tillerson had already managed projects all over the world, from the United States to Africa to the Middle East to Russia, and had taken the measure of various forms of governments and governors. Monarchies and dictatorships clearly presented certain political problems for the subjects of those countries, but from Exxon’s perspective—or for any foreign company wanting to do large-scale work on someone else’s sovereign soil—it was hard to argue with the fact that they could also offer much appreciated certainty and control, at least as long as the monarch or strongman stayed in power. If ExxonMobil needed something in, say, Equatorial Guinea, it knew exactly where to go to get it—which was to say from the good offices of the country’s president for life, the autocrat Teodoro Obiang Nguema Mbasogo. The president for life might have his own quirks and his odd desires, but for a company like Exxon his office was at least one-stop shopping: there was no one else you needed to talk to. Real democracies, where competing ideas and ideologies and other would-be could-be leaders were in a constant tug-of-war that could never be finally won—a mercurial electorate actually swaying outcomes and policies and national preferences back and forth—that was a neat trick for people-powered governance. But it wasn’t necessarily ideal for those concerned with maintaining the steady flow of oil and progress and profit.

ExxonMobil had booked all-time world-record earnings in each of the three years prior to Tillerson’s installation as chairman and chief executive officer. Its gross revenues the year he took over were approximately equivalent to the gross domestic product of Sweden, Switzerland, Indonesia, or Saudi Arabia. And CEO Tillerson had scant cause to worry about malign interference from the political classes, even on his tricky home shores. Like all U.S. oil producers, ExxonMobil (and its investors) continued to enjoy the sorts of subsidies and incentives that had been in the tax codes for almost a century. This kept its annual tax bills low—at times, almost unbelievably low—no matter how high its profits.

But in countries that lack strong, legitimate democratic governance, the discovery of oil generally leads to more trouble and more inequality. Back in 2002, around the time that Equatorial Guinea was being identified as a key potential supplier of U.S. oil imports, Dr. Terry Karl, the American professor at the vanguard of these studies, explained to a group of government officials and oil executives, “Without intervention of some sort,” they should expect “a reduction of the welfare of people in oil exporting countries. It will provoke violence and unrest. It will lead to the violation of rights. It will lead to the destruction of the environment. It will buffer authoritarian rule.”

“It’s occurred to all of us that our traditional sources of oil are not as secure as we once thought they were,” Congressman Ed Royce (R-Calif.) explained to a symposium of oil executives, U.S. government officials, academics, and envoys from several African countries four months after 9/11, in January 2002. “Oil is where you find it. Oil companies cannot always invest in democratically governed countries. It would be ideal if it could be guaranteed that the head of an African country where a U.S. oil company invested was, in fact, an advocate of democracy and always respected human rights. Unfortunately, that is not a realistic expectation.” His colleague Congressman William Jefferson (D-La.) concurred, but he saw possibility: “While there may be strivings and failings in Africa over democracy, in the Middle East there’s not even talk of it. Talk about democracy does not even part the lips of those who are in charge in those countries. So in Africa there’s at least a chance for the kinds of things we talk about here: rule of law, for transparency. There’s a chance for us to overcome some of the issues of bad governance through democratic influences.”

Everywhere they operate on earth, oil and gas companies are incentivized to push as far as they can on extraction (that’s how they make their money) and to escape negative consequences caused by that extraction. That’s the basic math that produces their profit, their market share, their stock price, and the happiness of their shareholders. Because oil and gas are found all over the freaking place, though, oil and gas companies need a rudimentary foreign policy to maximize shareholder happiness by maximizing their ability to produce their product. And it turns out, rationally and understandably, the foreign policy priorities of the oil and gas industry are stability, access, control, simplicity. Countries may come and go, but oil and gas companies need to think bigger than that: they make big expensive investments that cost a ton up front, and they need to be assured they’ll be able to collect the promised payoff after all that work and expense. So, the longer the relevant foreign ruler is in power, the better. And if the local autocrat is happily on the payroll, no one’s going to bother anyone about cleaning up any mess that oil production might cause in his country. And if any of the citizens of that country do step out of line and make a fuss, the ruling family (and its well-paid paramilitary forces and its expensive PR firms) will take care of that, too. And everyone else will look the other way.

As Lugar wrote in an introductory letter to the report, “Too often, oil money that should go to a nation’s poor ends up in the pockets of the rich, or it may be squandered on the trappings of power and massive showcase projects instead of being invested productively and actively.” The Resource Curse, Lugar noted, “affects us as well as producing countries. It exacerbates global poverty which can be a seedbed for terrorism, it dulls the effect of our foreign assistance, it empowers autocrats and dictators, and it can crimp world petroleum supplies by breeding instability.” Lugar’s study took the measure of oil-rich, governance-challenged countries in Africa, Asia, Europe, Latin America, and the Middle East. His solution was elegant and straightforward: transparency. Companies operating in extractive industries (from oil to diamonds) needed to provide the details of their business activities in foreign nations. And the countries needed to be more open about reporting what money came into state accounts and how it was spent. “When oil revenue in a producing country can be easily tracked,” Lugar wrote, “that nation’s elite are more likely to use revenues for the vital needs of their citizens and less likely to squander newfound wealth for self-aggrandizing projects.”

Russia’s great “victory” was not conceded here in the United States. The spies were caught, right, and without much trouble. And yet their story made for a fantastic tale. The saga of these deep-cover agents, spooling out in official legal filings and news accounts, offered tantalizing hints of intrigue, and peril, and old-school spycraft at work. The senior of the key suspects had been trained by the old Soviet KGB; the younger by the KGB’s Russian successor in foreign intelligence, the SVR. But these were not your garden-variety agents; the ten Russians captured in the United States in 2010 were modern inheritors of a long and storied history of Russian Illegals. Among spies, Illegals are a special breed of cat—long known for their “sophistication and flair,” as one Russian counterintelligence expert put it—assiduously prepared for long years on foreign assignment, pretending not to be Russians at all.

Once trained, Illegals were shipped off on assignments around the world, including to the United States, often as married couples, armed with legends—stolen identities and invented backstories—to work the long game. They did not gather foreign intelligence while safely under the guise of factotums at Russian embassies and consulates and trade missions, working in broad daylight, with the promise of diplomatic immunity if they were caught in acts of espionage. They instead lived like locals. As locals. They moved into American communities and made friends, went to graduate school and made new friends, got jobs and made new friends, had children and made new friends.

“Try to single out tidbits unknown publicly but revealed in private by sources close to State department, Government, major think tanks,” was the routine order from on high, as detailed in the U.S. Justice Department’s federal criminal complaint.

Putin was happy to allow the United States to pony up for oil pipelines and tanker-friendly deepwater ports in Russia. He was more than thrilled to have the bankers at Morgan Stanley shake the Western money tree on behalf of Russian companies and quick to boast of the world-beating economic growth that foreign investment engendered in Russia. But the old KGB man would never let go of his suspicion of the United States of America and its insatiable hunger for more. And it wasn’t just paranoia; it was worry borne out of legitimate weakness. Would Wall Street bankers horn in on the claptrap Russian industry that produced the nation’s one economic advantage? Would the United States somehow threaten Russia’s increasing dominance in Europe’s oil and gas markets? Even after the Cold War thaw, by Putin’s reckoning, the American government still seemed committed to eating away at Russia’s already-depleted global standing. America still had an appetite that grew as it was fed. So President Vlad was going to be keeping tabs. And the Illegals rather suddenly found themselves on an uncomfortably tight, and short, leash.

But this is not an entirely closed system (what is, really?), and the various waters can sometimes get away from the operators. Soil and water tests near fracking sites often turn up an unfortunate amount of dangerous chemicals and radioactive material. And that’s not awesome for a rapidly expanding industrial process, even in the abstract, but the nature of the American oil and gas business has meant that modern fracking operations are often sited uncomfortably near residences and pastureland, increasing the chances for human and animal exposure to any dangerous waters mishandled by drilling operators. For a study called “Impacts of Gas Drilling on Human and Animal Health,” veterinarian Michelle Bamberger and professor of molecular medicine Robert Oswald documented the experience of two neighboring families just south of Pittsburgh whose homes were surrounded by twenty-five separate drilling sites. What had been visited on them in 2009 and 2010 was truly awful. Both families noted pets dropping dead two or three days after they drank from open puddles in the street. When one family’s purebred boxer gave birth to fifteen pups, the entire litter was born with either complete or partial absence of fur. Seven were stillborn and the eight others were dead within a day.

More wells were being fracked in the United States than ever before in 2011, and almost six in ten new wells were horizontal. It had been less than one in ten a decade earlier. America muscled past Russia to become the largest producer of natural gas in the world, and the timing couldn’t have been better. The Wall Street–induced Great Recession had thrown the American economy into free fall, but the fracking-driven energy boom was like an unexpected net appearing underneath a doomed trapeze artist, mid-tragedy. Renewable energy might turn out to be an important legacy for Obama and Biden in the long run…but in the short run, the shale gas revolution was crucial.

Except that the industry did not relentlessly pursue improved “best practices” concerning safety, ever. Even old George Mitchell, who had become known as the Father of Modern Fracking, could see that. Mitchell joined with the former New York mayor and current environmentalist Michael Bloomberg to make a public plea for increased regulation in the summer of 2012. “The rapid expansion of fracking has invited legitimate concerns about its impact on water, air and climate,” Mitchell and Bloomberg wrote. “Concerns that industry has attempted to gloss over.” Privately, according to the New Yorker writer Lawrence Wright, Mitchell was less diplomatic. “These damn cowboys will wreck the world in order to get an extra one per cent” of profit, Mitchell told one of his sons-in-law. “You got to sit on ’em.”

State-controlled Russian television cameras were on hand in Sochi to record the signing of the new strategic alliance between ExxonMobil and Rosneft. The agreement, which called for an immediate investment of $3.2 billion to develop the oil and gas in the Kara Sea, was heralded as a partnership of equals, each of whom brought something of real value to the table. Rosneft offered its “unique resource base” (all that oil and gas off Russia’s Arctic coast) and ExxonMobil its “unique technology” (a track record of at least trying to tackle the obstacles of offshore drilling in the Arctic). One Russian official in Sochi complimented Exxon on the fact that its platforms in Canada “can sustain an impact from a one-ton iceberg.”

Putin and Sechin believed their energy industry was about restoring Russian honor, about winning prestige in the eyes of the world, à la the cosmonautical Soviet space program or the Soviet nuclear arsenal. Most of all they were convinced they could use all that Russian oil and gas, à la nuclear warheads and ICBMs, for power and leverage in advancing Putin’s foreign policy aims. Russian oil and gas would be treated as the property of the president, and they could and would be weaponized to serve the president’s purposes.

On New Year’s Day 2006, Putin offered Europe a little demonstration of just how vital was his proposed new pipeline and just how desperate things could get if it went unbuilt. That day, as the frigid season was setting in across Europe, Gazprom made sudden drastic cuts in its supply of gas into Ukraine, which at that time held the only extant pipelines from Russia into the rest of Europe. Ukraine predictably siphoned off the gas it needed from the supply transiting through its landscape into other European countries. Gas deliveries into Austria dropped by a third the next day; gas deliveries to Hungary fell by 40 percent on the day following. Slovakia, also down 40 percent, declared a national emergency. Industrial output in Bulgaria and Romania ground to a stop. While these and other European nations shivered in panic, the Russians pointed the finger at Ukraine for stealing the natural gas bound for them, and insisted Gazprom customers could not rely on Ukraine to play fair with EU-bound gas. By the time the Russians made peace with Ukraine and turned the spigot back on, the new Nord Stream (which bypassed the allegedly pilfering Ukrainians entirely) was the talk of Europe. When Russia hosted the G8 summit in St. Petersburg six months later, Putin’s government chose as its theme international energy security. Russian representatives used the summit to offer the West a deal. It ran like this: We Russians are tired of your constant carping about our human rights and free speech violations. Let’s just put all that to the side and have a proper business relationship. We’ll be your energy supplier. In fact, we will guarantee enough energy for every house and factory in Europe. You’ll never have to worry about that again. All you have to do is pay us for the fuel and stop with the moralizing. Sounded like a pretty fair trade at the time. Much of Europe signed on the dotted line, waving away concerns that it essentially made the Continent beholden to Russia for its productivity as a region on earth.

On the oil side, the Energy Superpower strategy posed even bigger problems. Putin had been gangstering up the Russian oil industry for years. Eschewing competition that might encourage innovation and meritocratic success, Putin instead just smashed and grabbed any homegrown enterprises that proved resourceful or entrepreneurial or attractive to legitimate investors—goodbye, Yukos. He harassed foreign interlopers, too. He invented a dubious environmental violation bill of attainder, to force Shell Oil to hand over controlling interest to Gazprom in a $20 billion project in the far east of Russia. The consequences for Russia could be overlooked when oil prices remained high, but the rotten core problem was pretty clear to anybody who was paying close attention.

On top of all that, a group of Putin’s long-standing and most effective critics in Russia published a detailed report on Vladimir’s spectacular profligacy during the preparations for Sochi. The main author of this report, Boris Nemtsov, was a brilliant Russian physicist and mathematician and a true believer in democracy and government transparency. He had been a rising political star in post-Soviet Russia—even appeared to be Yeltsin’s heir apparent—until the economic crash in 1998 laid waste to the Kremlin hierarchy. Nemtsov watched the rise of Putin from the sidelines after that and was increasingly alarmed by the KGB-trained president’s crackdown on the free press, by the extrajudicial way Putin and Sechin manhandled Yukos and Mikhail Khodorkovsky, among others, and by Putin’s updated and upgraded Grabification 2.0. Nemtsov became one of the president’s most vocal and most popular opponents, and a relentless burr under Putin’s saddle. He co-authored a no-holds-barred study of the Kremlin’s venality and mismanagement in its running of Gazprom in 2008. And in 2012, he publicly praised the Magnitsky Act, which permitted the U.S. Congress to mete out real economic punishment on specific individuals in Russia who committed gross human rights violations. Unlike Carter Page, who decried the Magnitsky Act as latter-day McCarthyism, Nemtsov hailed it as the way to finally nick the “crooks and abusers” among Russian businessmen and officials.

The oblasts in western Ukraine tended to be more culturally European, keen on Ukrainian autonomy, and attached to the Ukrainian language. The eastern oblasts, with their large Russian-speaking populations, maintained greater affinity for all things Russian. So the national allegiance was always sort of in the middle. Ukrainians were hot to get in on Western Europe’s free-market capitalism, but in their wobbly, brand-new democracy they ended up entrusting their political leadership in Kyiv to the old Soviet apparatchiks.

Ukraine had a mammoth appetite for gas—for Russian gas. The country consumed more fuel as a percentage of its GDP than any nation in the world, and its fuel of choice was natural gas. The country bought three-quarters of its supply through Russia’s state-controlled monopoly, Gazprom; it also made money transiting Russian gas through pipelines to Gazprom customers in Europe. So even after the Orange Revolution and the election of Yushchenko, Russia still managed to keep a hold on the reins of Ukraine’s economy, and its politics—which was perfect, as far as Putin was concerned. The infinitely corruptible energy business allowed Putin to pick and choose who would be rich and who would be powerful in Ukraine. He had learned this system well in St. Petersburg and then in Moscow, and it fast became Putin’s strategy for projecting Russian power beyond its borders. The biggest threat he had to keep at bay was the prospect of strong, rich, stable, Western-oriented democracies in Russia’s near abroad. That sort of thing could not only challenge or constrain Russia’s regional power; it could conceivably—the horror—inspire the Russian people themselves, leading them to demand a democratic say in their own government as well.

Ukrainian companies were ratcheting up their own production in the country’s oil and gas fields, signing production deals with the major Western oil companies. They could frack, too! Ukraine had almost 400 million barrels of proven oil reserves, and God only knew how much natural gas once the serious fracking got going. Ukrainian officials were already talking about being able to produce every cubic meter of natural gas the country needed, inside the country. And to be able to export gas to Europe at a profit. This was revolting to Putin, whose lifeblood income came from Russia’s natural gas sales in Europe and whose gravitational pull over countries in his orbit was the control, corruption, and cash that energy supplies afforded him. Putin could at least manage Ukraine’s fractious and corruptible lurches at political independence. He could not countenance the idea of Ukraine’s energy independence, which would certainly lead to Ukraine’s actual independence. Woe be unto the Russian leader who loses control of Ukraine. Especially now.

The ukases from the Kremlin in the days after Yanukovych’s embarrassing flight were swift, and swiftly executed. Some were clearly symbolic. Boris Nemtsov and the recently released Pussy Riot ladies were arrested and jailed again. The most important move was intended to project Russia’s revivified superpower power. We’re done sulking. Putin dispatched a Russian military force (sans uniforms) into Crimea, Ukraine’s southernmost landmass, to take it for Mother Russia, while sending his spokesmen out to deny the presence of any regular Russian soldiers in the area. This was all an impromptu campaign by separatists in Crimea, Kremlin officials explained, who were prodded to action by the terrifying events of the Maidan. Whatever aid came from Moscow was simply to avoid a humanitarian crisis and a slaughter of innocent Russian-speaking people in Crimea by the crazed neo-Nazi Ukrainian nationalists. Startled Western leaders warned the newly formed Ukrainian government not to fight back in Crimea, for fear Russia would use it as an excuse to invade the entire country. In less than three weeks, Putin ripped Crimea from Ukraine and took it for Russia. The “exit of Crimea from Ukraine,” the Kremlin claimed, was the result of “complex international processes.” It was the first time since World War II that one country had rewritten another’s borders by force and seized an entire landmass and its people for itself. Putin had blatantly violated Russia’s vow to respect Ukrainian sovereignty, and he didn’t seem content to stop at Crimea. He was already moving his forces toward other oblasts in the east of Ukraine, which also happened to be the oblasts with promising fields of oil and gas.

European Union leaders were wary about supporting the United States on the new sanctions, because they were scared of backing the volatile Putin into a corner. Not only did EU countries do ten times more trade with Russia than did the United States, but they were dependent on Russia for much of their energy.

Putin “implanted them with a virus of inferiority complex towards the West, the belief that the only thing we can do to amaze the world is use force, violence and aggression….[Putin and his siloviki] operate in accordance with the simple principles of Joseph Goebbels: Play on the emotions; the bigger the lie, the better; lies should be repeated many times….Unfortunately, it works. The hysteria reached unprecedented levels, hence the high level of support for Putin. We need to work as quickly as possible to show the Russians that there is an alternative. That Putin’s policy leads to degradation and suicide of the state. There is less and less time to wake up….You need an alternative vision, a different idea of Russia. Our idea is one of a democratic and open Russia. A country that is not applying bandits’ methods to its own citizens and neighbors.”

“At first we were forced to watch the ‘House of Cards’ in English,” said one of the trolls who worked at IRA in 2015. “It was necessary to know all the main problems of the United States of America. Tax problems, the problem of gays, sexual minorities, weapons. Our goal wasn’t to turn Americans toward Russia. Our goal was to set Americans against their own government. To provoke unrest, provoke dissatisfaction.”

Americans can and do argue whether, absent the big Russian push against the Democratic presidential nominee and for the Republican, Trump would have won his narrow Electoral College victory in 2016. And Americans can and do argue whether the Trump campaign’s many open acts of boosting the efforts of Putin and his military intelligence cybercriminals and his army of Guccifer-descendant trolls at 55 Savushkina Street were provably criminal, or merely contemptible. But what is undeniably true is that Putin succeeded, probably beyond his wildest imaginings, in his highest real aim. The “goal seems to be not domination but chaos,” longtime Moscow correspondent Susan B. Glasser succinctly explained in an essay in Politico a year after the 2016 election. “The objective is not to destroy us, but to weaken and confuse us.”

Russia’s way out of this existential conundrum has had two components: one business, one pleasure. The business part is tidy. With the broken-nosed, no-necked ex-spies perched atop the management structure of Rosneft and Gazprom, Russia’s not exactly running a world-class operation when it comes to the production of its one indispensable commodity. Russia’s economic future therefore depends on Putin making deals with major international oil and gas companies who can be counted on to understand his imperatives and to not care at all about ethics and governance and geopolitical consequences of their cozying up to the Kremlin. Those kinds of deals aren’t just beneficial to the Russian economy; they’re critical necessities for Putin’s one-track plan for twenty-first-century Russia. And it turns out that as long as Putin is honoring the “sanctity of contract” and implementing friendly tax laws, industry leaders from the West have shown little hesitation in making those deals. That’s the business part.

As Special Counsel Mueller and reporters throughout Europe and America have made clear, the Russian Federation ultimately embarked on a deliberate and aggressive campaign to tear apart Western alliances, to rot democracy, and to piss in the punch bowl of free elections all over the civilized world. It continues to this day. And Putin isn’t doing this because of Russia’s strength. Not according to people who have watched the action up close. Russia “gives the impression that I am a lion who walks through the world hitting France with one paw, with the other Britain and America,” says Romanian security expert Dan Dungaciu. “But it is not a lion. It is rather in the role of a hyena, which senses a crisis and goes there and plays on the crisis.” The leaders of actually strong countries who have pushed back against Putin understand too. “I understand why he has to do this—to prove he’s a man,” Germany’s chancellor, Angela Merkel, has said. “He’s afraid of his own weakness. Russia has nothing, no successful politics or economy. All they have is this.”

That’s how we get the twin engines of petroleum-powered governance, which suck the life out of democracies everywhere: corruption, in which the industry effectively owns politicians; and capture, in which the industry effectively owns the whole government. The result is everything the oil and gas producers need to get by and cash in—predictable government that responds to the industry and not to any other stakeholders that might get in its way. And one size doesn’t necessarily fit all; the industry can work as happily with a weak and feckless government as it can with a dictatorial authoritarian regime, as long as it’s at least in cahoots with (if not fully driving) government decisions. This isn’t to say that the oil and gas industry is hell-bent on bad government for some ideological reason; it’s just practical business sense. Democratically responsive government not only turns over whenever its people want change; it also creates the prospect of all these too-hard-to-plan-for X factors, like independent, non-industry-friendly regulations, or a legislature deciding to calculate the full publicly borne costs of oil and gas exploration and production, or a government even deciding to take the expanding costs of global warming out of the hide of the industry that brought it down upon us.

That quiet little boring measure that so thrilled Senator Inhofe—the curtain-raising legislation of the 115th Congress—nullified a provision in the 2010 Dodd-Frank Wall Street reform law that required oil and gas companies listed on the American stock exchange to publicly report all taxes, royalties, licensing fees, dividends, and bonuses paid to foreign governments or foreign government officials with whom they were doing business. This provision in Dodd-Frank, Section 1504, was designed to induce financial transparency for oil and gas industry operations in developing countries like Nigeria, Liberia, Guyana, Azerbaijan, and, Exhibit A, Equatorial Guinea. They were all Resource Curse case studies by then—revenues from oil and gas enriching the lucky few at the tippy-top of the government pyramid structure while the rest of their countrymen festered in worsening indigence and privation.

About Journeyman

A global macro analyst with over four years experience in the financial market, the author began his career as an equity analyst before transitioning to macro research focusing on Emerging Markets at a well-known independent research firm. He read voraciously, spending most of his free time following The Economist magazine and reading topics on finance and self-improvement. When off duty, he works part-time for Getty Images, taking pictures from all over the globe. To date, he has over 1200 pictures over 35 countries being sold through the company.
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