Russian President Dmitri Medvedev replaced the head of Russian state-owned oil company Rosneft, Sergei Bogdanchikov, with Rosneft Vice President Eduard Khudainatov over the weekend. This change in leadership is the manifestation of two Russian strategies: shuffling governmental posts before elections in 2012 and making Rosneft into a strategic political tool for Moscow along the lines of Gazprom, which the Kremlin uses to both domestically monopolize the market and to pressure countries connected to Russia’s energy supplies.
Political Aspirations for Rosneft
Rosneft and Gazprom, though both massive, state-owned entities, traditionally have been managed differently. Where Gazprom has been known to tackle multiple expensive, logistically unsound projects that may be less profitable than they are politically viable, Rosneft has acted more conservatively. In 2007, Russian Vice Prime Minister Igor Sechin, a Rosneft board member and part of Russia’s old siloviki, pressed for Rosneft to become more like Gazprom in order to help his domestic and international political agenda. But Bogdanchikov held his ground to maintain Rosneft’s efficacy, and rumours of his impending ejection have been prevalent since then.
With Bogdanchikov’s replacement, the Kremlin is beginning to implement its new strategy for Rosneft. STRATFOR sources say the Kremlin wants Rosneft to speed up its exploitation of domestic oil reserves. Over the past few years, the company has been focusing on mostly undeveloped East Siberian oil fields, which have remained undeveloped because of the high cost of energy extraction in Siberia. The region is difficult to work in and there is little industrial support, meaning that any equipment must be transported thousands of miles. As a result, when Rosneft began focusing on East Siberia it slowed implementation of its plans to ensure its methods were technically and financially sound. The Kremlin, however, is eager to begin production in East Siberia, which would allow Russia both to ship oil to the east as well as the west and politically tie East Asian countries to Russia’s energy supplies.
The Kremlin also wants Rosneft to begin reaching abroad. Gazprom has set its roots down in the majority of the former Soviet states and in many strategic states abroad for political and economic reasons, and it has found success in these endeavours less because of a technical edge over its competitors than because it has the backing of the Kremlin. Rosneft would undoubtedly have the same backing in addition to the technical expertise to operate in difficult locations — though only onshore. This means that while Rosneft cannot compete technically with Western firms, it would have an edge on Asian ones.
Though the Kremlin has lofty plans for Rosneft, there is a chance this broadening could lead the company to overextend itself as Gazprom has done in the past. Bogdanchikov, in standing up to the Kremlin’s wishes, previously had prevented this overextension, and Khudainatov is known as a technocrat who understands Rosneft’s limits. However, he is also known for bending to Moscow’s demands, and it is unclear if he will be able to strike a balance.
Moscow Leadership Reshuffle
Bogdanchikov’s replacement is also an indication of a possible larger reorganization in Moscow to come. Before the 2008 elections, when Medvedev became president, the Kremlin underwent a massive reshuffling of some of the top positions across the board — premier, security chiefs, business leaders and ministers. Russian Prime Minister Vladimir Putin hinted last week that before the 2012 elections Russia could see another such overhaul.
In the past, such moves were meant to keep the inner circles from getting too comfortable and inefficient in their positions. Currently, the moves are also meant to ensure that the country’s most critical and strategic companies are on the same agenda — be that economic or political — with the Kremlin for the future of Russia. Lastly, the reshuffles will help the country’s ruling tandem, Medvedev and Putin, to shape Russia’s power structure as they reorganize the government ahead of the 2012 elections, allowing them to ensure their control over the power players.
*This report is reprinted with permission of STRATFOR. It may not be reprinted by any other party without express permission of STRATFOR.
For more reports, visit www.stratfor.com
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