eBook - ePub
The Squeeze
Oil, Money and Greed in the 21st Century (Text Only)
Tom Bower
This is a test
Share book
- English
- ePUB (mobile friendly)
- Available on iOS & Android
eBook - ePub
The Squeeze
Oil, Money and Greed in the 21st Century (Text Only)
Tom Bower
Book details
Book preview
Table of contents
Citations
About This Book
The sensational human story of the hunt for oil, and the politics, power and personalities involved.
Frequently asked questions
How do I cancel my subscription?
Can/how do I download books?
At the moment all of our mobile-responsive ePub books are available to download via the app. Most of our PDFs are also available to download and we're working on making the final remaining ones downloadable now. Learn more here.
What is the difference between the pricing plans?
Both plans give you full access to the library and all of Perlegoâs features. The only differences are the price and subscription period: With the annual plan youâll save around 30% compared to 12 months on the monthly plan.
What is Perlego?
We are an online textbook subscription service, where you can get access to an entire online library for less than the price of a single book per month. With over 1 million books across 1000+ topics, weâve got you covered! Learn more here.
Do you support text-to-speech?
Look out for the read-aloud symbol on your next book to see if you can listen to it. The read-aloud tool reads text aloud for you, highlighting the text as it is being read. You can pause it, speed it up and slow it down. Learn more here.
Is The Squeeze an online PDF/ePUB?
Yes, you can access The Squeeze by Tom Bower in PDF and/or ePUB format, as well as other popular books in Business & Business General. We have over one million books available in our catalogue for you to explore.
Information
ONE
The Emperor
NEW YORK, 25 SEPTEMBER 2003
Lee Raymond did not conceal his impatience. The Russian president was 30 minutes late. Speaking in muted voices, the three other men and one woman waiting with Raymond in the Waldorf Astoria suite speculated whether Vladimir Putin had abandoned the meeting. âIâm sure heâll come,â suggested one. Raymondâs irritation was not assuaged.
Dealing with dictators was usual for Exxonâs 65-year-old chairman and chief executive. In his experience, oil was mostly controlled by feudalists, kleptocrats, zealots and fanatics. âGo to the top, do the deal and the rest follows,â was Raymondâs way. Over recent years the chemical engineer born in South Dakota had encountered many of the worldâs oil-rich despots. Renowned for his reserved, focused and analytical manner, he had run all those negotiations just the way he ran ExxonMobil itself â with clockwork efficiency. Oil, according to ExxonMobilâs textbook, never surprises; principles never changed, only the circumstances. Vladimir Putin, Raymond believed, was no different from other authoritarians except that he had nuclear weapons and controlled the worldâs biggest oil and gas reserves. That justified the flight from Dallas and the unpleasantness of meeting another stranger.
Although outspoken and prone to steamroller those he disdained by the sheer weight of his intelligence, Raymond was awkward in the limelight. No concessions were offered to friends or opponents. Unglamorous and conscious of his harelip, he personified the arrogance which united the oil world in hatred, envy and admiration of ExxonMobil. Imbued with ExxonMobilâs genes, Raymondâs sense of the world was insular. Most non-Americans, in his opinion, especially those from the Third World, were disagreeable.
Today, however, was not the moment to betray his prejudices. Other heads of state had been exposed to his scorn, but, nearing the end of his 40-year career, Raymond ached to clinch this deal. If, as expected, Putin agreed in principle to ExxonMobilâs $45 billion offer, the companyâs status as the worldâs biggest oil corporation would remain unchallenged. Merit and the odds, Raymond calculated, were tilted in his favour.
For 18 months a small team under Rex Tillerson, Raymondâs deputy and heir apparent, had secretly vetted Yukos, a private Russian company which produced 20 per cent of the countryâs oil. During his negotiations with Mikhail Khodorkovsky, the billionaire Jewish oligarch who controlled Yukos with a 44 per cent stake, Tillerson, a well-dressed Texan who despite appearances was just as tough as his boss, reassured himself that the company would be an outstanding purchase. With oilfields stretching across western Siberia, Yukos was a gem.
During the last weeks, the proposition had improved beyond Tillersonâs original imagination. Putin had approved Yukosâs merger with Sibneft, another private Russian oil company. Together, they would rank fourth in the world league, controlling one third of Russiaâs oil production and growing at 20 per cent every year, three times faster than Russiaâs state-owned oil industries â and beyond Putinâs control. The marriage of the two companies had been blessed by Mikhail Kasyanov, the prime minister, as âa flagship for the Russian economy.â Combining Yukosâs production of 2.16 million barrels a day â no less than 2 per cent of the worldâs output â with ExxonMobilâs similar production would eclipse all ExxonMobilâs rivals. Tillersonâs main concern remained the Kremlinâs reaction. In mid-2003 he had asked Khodorkovsky if the deal was politically acceptable. Khodorkovsky had replied emphatically, âLet me take care of this. Iâve spoken to Putin and itâs OK.â Nothing, Tillerson believed, had changed in the last three months. On the contrary â the meeting with Putin was intended to seal the deal.
Khodorkovskyâs self-confidence was reassuring to the inflexibly direct Tillerson, who would be described by Dave Godfrey, a New York lawyer representing Yukos, as a âcaricature of the top arrogant Czar giving out that it was an honour for me to negotiate with ExxonMobilâ. Having successfully established an oilfield on Sakhalin, a Russian island in the Pacific, as ExxonMobilâs most profitable operation, Tillerson felt comfortable navigating through Russiaâs political and economic turbulence. Khodorkovsky, he reassured Raymond, could deliver. Naturally, Raymond did not entirely rely on Tillerson. He had met Khodorkovsky in Dallas and Moscow, and got on well with him. Money cemented their mutual respect. Raymond, like Tiller-son, was inclined to accept Khodorkovskyâs good faith. But while Raymond acknowledged that there were events he could not control, Tillerson lacked awareness of the limits to ExxonMobilâs authority. The heir, most agreed, was nicer and more personable than the chairman, but not as wise. The less kind regarded them as more or less identical ExxonMobil models, except that Tillerson smiled.
As the chairman of the worldâs biggest privately owned corporation, Lee Raymondâs priority was to look after the interests of ExxonMobilâs shareholders. âExxonMobil is a company, not a government,â he would tell those who urged the corporation to consider global warming, social inequalities and international relations with the oil-producing countries. Those topics, and especially ExxonMobilâs relationships with Third World governments, had become critical in recent years. Maintaining production had become a problem for all the major oil companies â ExxonMobil, BP, Shell, Chevron and Total. ExxonMobil in particular was engaged in contractual disputes about its operations with several governments. Like all the oil majors, the company was handicapped in its search for new reserves by Third World governments refusing to grant access on acceptable terms. In the Middle East, South America and Asia, self-interested nationalism was denying ExxonMobil commercially advantageous deals. This was partly a result of Raymond and his rivals alienating the rulers of the oil-producing nations. Unable to gain access on their terms to those countries, the oil majors held back, pleading that exploiting their reserves was âriskyâ, âunprofitableâ or âunviableâ. Even in Saudi Arabia, the companyâs trusted partner and the worldâs biggest oil supplier, there was animosity. At the end of some particularly acrimonious negotiations with Crown Prince Saud al Faisal, Raymond had become exasperated by the Kingdomâs refusal to give Exxon a fair return. âWe have better things to do with our money,â he snapped. âIf you donât agree to what Iâm offering, Iâm off to play golf.â
The consequences of declining oil supplies to the global economy were incalculable, and the danger of a shortage was accelerating, although ample reserves lay under the earth. Russiaâs vast untapped oil reserves promised some relief from that vicious circle. Both Raymond and Tiller-son recognised Russia as representing ExxonMobilâs best opportunity to reverse the companyâs recent stagnation. Khodorkovsky was offering Raymond the ultimate prize, but more was at stake than ExxonMobilâs fortunes. Access to Russiaâs oil would reduce OPECâs supremacy and its self-interested pursuit of higher prices. Ever since the collapse of the Soviet Union in 1989, Russia had been a magnet for oil prospectors, and over the previous decade the Western oil majors had negotiated profitable deals. Some were judged, particularly by President Putin, to be excessively profitable, exploiting Russiaâs vulnerability after the collapse of communism. Nevertheless, oil and gas had become the cornerstones of the countryâs economic growth. Winning Putinâs trust, Raymond knew, was critical to completing the deal. If he failed, the Russian presidentâs antagonism could contribute to jeopardising the global economy. Those wider concerns had not troubled Raymond during his negotiations with Khodorkovsky. As always, ExxonMobilâs interests were his sole concern.
Fortunately, the risk of Putin blocking Exxonâs deal with Khodorkovsky had, in Raymondâs opinion, been lifted three months earlier when the president had visited London to witness Mikhail Fridman, another oil oligarch, sign an agreement with John Browne, BPâs chief executive, to sell 50 per cent of TNK, Russiaâs third largest oil company, for just $10 billion. Raymond did not underestimate the importance of that deal, which was the largest ever foreign investment in Russia. It confirmed Putinâs favourable predisposition towards BP and, irritatingly, Browneâs decisive influence over the industry. Since 1998 Browne had not only transformed BP from an also-ran into a major challenger to Exxon, but by acquiring American oil companies he had set the pace. Raymondâs ambitions were frequently compared to Browneâs achievements.
âHeâs a bandit,â Raymond had said in testament to the diminutive Browneâs tough negotiating skills in Alaska, where Exxon and BP shared pipelines and other facilities. Raymond disliked the Englishmanâs aggressive takeovers, belligerence and business model. Although both had earned their reputations cutting costs, he dismissed Browne as a generalist and a non-engineer. âWe donât have hero leaders like BP,â Raymondâs associates would observe. âBP,â Raymond would say, âwill have its moment of truth.â Some suspected that Raymondâs unease sprang from his disapproval of Browneâs homosexuality. While tolerated within Exxon, homosexuals were barred from claiming partnership benefits for expatriate expenses and services, and overt displays of their sexual preference were discouraged. Raymond refused to add sexual orientation to Exxonâs non-discrimination agenda. Others believed Raymond was irritated by Browneâs transformation of BP from a withered wreck to challenge Exxonâs rank as number one. After two groundbreaking takeovers, a successful rebranding of BP as an environmentally friendly corporation, and big oil strikes in the Gulf of Mexico, there were rumours about Browne seeking a merger between BP and Shell to claim Exxonâs crown as the worldâs largest oil producer. Closing the Yukos deal would terminate that menace.
âIf BP can do it, anyone can do it,â was the attitude among the Exxon executives waiting for Putin in New York. âBPâs deal is borderline, and Exxon can do better.â Mikhail Fridman, a tough operator, had offered TNK around the industry before BP bit, but Yukos was more enticing. The irritant was Browneâs success. Like Exxon, in the aftermath of the TNK purchase all BPâs smaller rivals, including Total, ConocoPhillips and Chevron, felt compelled to find a similar deal in Russia.
In common with all the oligarchs, Khodorkovsky had obtained his original fortune illicitly. Smart, intelligent and arrogant, he was not flashy. Despite his wealth, estimated by Forbes to be $8 billion, the 40-year-old owned no yachts, was driven in a standard S-class Mercedes and a small BMW, employed just one bodyguard, owned only one house in Zhukovka, the billionairesâ enclave outside Moscow with its own clubs and restaurants, and was entranced by the latest electronic gadgets and toys. He was never seen flaunting a mistress, owned only one private jet, and, like all Russiaâs billionaires accustomed to the wreckage caused by vodka, he rarely drank. His ambitions nevertheless were serious. Since buying Yukos for $350 million in 1995 he had, with the help of Joe Mach, an abrasive and brilliant American oil engineer hired from Schlumberger, the worldâs biggest provider of services to the oil industry, transformed the companyâs fields by re-educating the Russian engineers. Previously large amounts of oil had been stolen by the oilfieldsâ managers and organised criminals, and no one cared about water contaminating the wells. The oligarchs, many suspected, merely wanted to strip the assets and carelessly allow oil production to decline. Khodorkovsky had transformed Yukos into Russiaâs best oil company. Valued at $1 billion in 1999, it was worth $40 billion by 2003, and he retained a 44 per cent stake. Overseeing 100,000 employees from his gleaming headquarters, Khodorkovsky would quietly listen to advice, never yell, and never waste time with stupid ideas. Driven by ambition, he had stopped his public relations managers propagating the message of beating Lee Raymond and turning Yukos into Exxon, instead promoting the idea of selling stakes in Yukos as a stepping stone to political power in Russia.
Khodorkovskyâs ambition to topple Vladimir Putin was undisguised. During his conversations with Raymond in Moscow in early 2003, he anticipated his supporters winning 40 per cent of the seats in the Duma, the Russian parliament, and himself becoming prime minister after the elections in December that year. By June 2003 he was assumed to have bribed sufficient members of the Duma, including some of Putinâs supporters, to defeat the governmentâs legislation on tax reform. If the legislation became law, Khodorkovsky was heard to predict, Putin would âget firedâ. Putinâs irritation had not troubled Khodorkovsky, and relations between the two had deteriorated as the oligarch flaunted his ability to bribe members of the Duma in the months before the elections. Russiaâs internal strife did not concern Exxonâs chairman, although he knew that the Kremlin was the only obstacle to a deal. âIâll look after the government,â Khodorkovsky had reassured Raymond. âDonât rely on that,â Raymond was advised. âWe need our own approach.â Other than Putin himself, only three other people could decide Yukosâs fate, and those power-brokers, everyone assumed, were not sure themselves what would happen next. Igor Sechin was among those who could provide reassurance.
Igor Sechin was Putinâs trusted âMr Oilâ in the Kremlin, the gatekeeper to Russiaâs oil policy. The two had become friends while working together for the mayor of St Petersburg, Anatoly Sobchak, during the Yeltsin era. Sechin was also chairman of Rosneft, a state-owned oil company. A key member of the âsilovikiâ, the St Petersburg crowd of hard-faced former KGB and military officers surrounding Putin in the Kremlin, 43-year-old Sechin was regarded by outsiders as disdainful of the Jewish oligarchs who controlled about 50 per cent of Russiaâs economy. Convinced that Sechin would oppose a deal between Yukos and Exxon, Exxonâs representatives in Moscow had sought an alternative route through the Kremlinâs hierarchy to secure Putinâs approval. Igor Shuvalov, Putinâs economic adviser, was chosen as the conduit. Based at Old Square, the former Communist Party headquarters linked to the Kremlin by an 800-yard tunnel, Shuvalov had heard about Exxonâs âequity investmentâ in Yukos soon after Khodorkovsky initially approached Tillerson. Since the size of Exxonâs proposed stake was deliberately concealed, he had no reason to object. âI will inform the boss and get back to you,â he had said. One week later, Shuvalov telephoned Exxonâs office: âThis is interesting. We are supportive.â
Since then, greed had infected the negotiations. As Exxonâs experts grasped Yukosâs true value, caution was abandoned. A desire for a 20 per cent stake was replaced by wanting everything. âWe hunt for whales, not sardines,â said Raymond. âWe wonât be a junior partner in Russia. Weâll only invest in Russia when the terms are right.â Khodorkovsky also became greedy. Aware that the oil majors needed new reserves and were envious of BPâs deal, he wanted top dollar for his shares. The timing, he said, was perfect. The rouble had devalued, and Yukos was aggressively valued. At $35 a barrel, oil prices, he believed, were peaking. Like every oil executive, he could not imagine where oil prices were heading over the following five years.
In June 2003, Khodorkovsky anticipated success. To celebrate Yukosâs record profits, he rented a luxury yacht to sail from Moscow to St Petersburg. Four days later, his business partner Platon Lebedev was arrested and charged with fraud. âDonât worry,â Khodorkovsky told his entourage. âHeâll be in jail for three months and then weâll get him out.â No one was quite sure whether Khodorkovsky genuinely believed his own bravado, but he refused to flee Russia. âIâm not going to become the next insane Berezovsky,â he said, referring to the oligarch who, after helping Putin to power, fled as a permanent exile to London. In the event Lebedev was found guilty of tax evasion and sentenced to eight yearsâ imprisonment.
Raymond remained oblivious to the changing mood. Unlike John Browne, he was unversed in Russian culture and sensitivities. While Browne respected Russian history, Raymond saw a greenfield site. Exxon lacked experts who could provide genuine insight about the Kremlinâs intentions, especially Putinâs ambition to use the worldâs dependence on Russiaâs energy resources as a tool to reassert the nationâs status as a superpower. Whether Putin regarded Khodorkovsky as a serious obstacle to that ambition in summer 2003 is uncertain. Raymond did not suffer any misgivings. Impervious to subtleties, he approached the final deal, as always, by squeezing sentiment out of the negotiations. In July 2003 he visited Putin in the Kremlin. His pitch to the president was familiar: âWe can help you elevate your country by extracting your oil resources.â During that visit Mikhail Kasyanov, the prime minister, assured Raymond that Exxon would be allowed to buy a stake in Yukos.
Raymond, accustomed to negotiating with kings and presidents as an equal, shared their lifestyle. Arriving in Moscow with six bodyguards, he secured motorbike outriders from Moscowâs police department for his limousineâs dash into the city, and the whole top floor of the Kempinsky, Moscowâs most expensive hotel, was assigned to him. Putin would be intrigued to hear about two eccentricities during that visit. Since Raymond intended to leave Moscow on a Sunday, the cityâs Baptist church was opened on Saturday to allow him and his wife Charlene the chance to pray.
During a previous visit to Moscow, Charlene had spotted some sculptured wooden figures in a store which she wanted to inspect again. Exxonâs security officers had declared that revisiting the store was excessively dangerous, so arrangements were made just prior to the Raymondsâ arrival for a room on the Kempinskyâs top floor to be converted into a display and filled with 60 wooden sculptures. After nearly two hours in the room, Charlene announced, âYes, Iâll take them.â
Exactly 30 minutes late, Putin entered the Waldorf suite, accompanied by Igor Shuvalov, Sergei Priodka, a foreign affairs adviser, and the Russian ambassador in Washington. Putin would have been conscious that he was nearly the youngest in the room. He and Raymond shared a three-seater divan, while Rex Tillerson and Anna Kunanyansay, Exxonâs Russian-speaking adviser, took chairs. Kunanyansay, a Jewish Ă©migrĂ©e from Kiev, had made the arrangements with the Russian ambassador for the meeting. Trusted by Lee and Charlene Raymond, she was suspicious of Putin.
After a few minutesâ pleasantries, Raymond cut to the chase. His tone was deferential, but not obsequious. âAs you know, Mr President, we have been in negotiations for some time with Yukos.â
âYes, I know,â said Putin. âFor 25 per cent of the shares plus one share. A minority stake.â
âWell, Mr President,â replied Raymond, âI think we must be clear. I want you to understand that we will only buy 25 per cent if we can see a way to buy total control, and thatâs why Iâm here to see you today. To check that thatâs OK with you. Our ultimate goal is to buy a majority stake in Yukos.â
Putin did not flinch visibly, but the translators heard exasperation in his reply, âThis is the first time Iâve heard that. Khodorkovsky didnât tell me.â Raymond pursued his theme, explaining that the deal would improve Russiaâs relations with America. âWell, weâll see,â said Putin ev...