Private Empire: ExxonMobil and American Power (35 page)

Every Monday afternoon Misamore met with Khodorkovsky in the Russian’s office in the old Soviet-era Menatep bank building on Ulansky Pereulok, fronting Moscow’s Garden Ring. Khodorkovsky usually wore jeans, a turtleneck, and a sport coat. Misamore came to regard the young billionaire as a visionary and a natural leader. He lacked some management skills, perhaps, but he possessed a powerful intuition about Russia’s present and future, Misamore believed.

In late 2001, just as the Bush-Putin energy negotiations were launched, Khodorkovsky told Misamore that he wanted to explore the sale of some of his and his partners’ shares in Yukos—up to 25 percent—to a foreign oil company. Given the immense amount of oil reserves controlled by Yukos, this would be a great prize in equity oil holdings for whatever corporation bought in. For Yukos, it would diversify ownership and provide opportunities to explore and develop oil reserves outside Russia.

Misamore was enthusiastic. “One of the reasons I came here, Mikhail, was because I wanted to have a big impact on the future of Russia, through the example of Yukos,” he told Khodorkovsky. “This guy Putin—all the reforms, and his support for reforms—everything seems to be going very well.”

“Be very careful,” Khodorkovsky had replied, as Misamore recalled it. “What is going on behind the scenes—and nobody can see it—is that Putin is stacking the Kremlin with former K.G.B.-ers and former Russian military types. This is very, very dangerous because Putin is basically consolidating his power through these groups of ultraconservative Russians. Once he gets that power established in the Kremlin, it is going to be worse.” That was why they had to move diligently; Khodorkovsky believed they could succeed in selling a piece of Yukos, but they would have to watch the Kremlin carefully. Although he did not discuss it at length with Misamore at their weekly meetings, Khodorkovsky seemed to have his own strategy to counter Putin: He was spending money to build ties to members of Russia’s parliament, the Duma, to create a political bulwark. Khodorkovsky never explained his strategy fully, and perhaps he was too opportunistic and improvisational to have a careful one, but it appeared that he envisioned two prongs of activity to outflank Putin’s cabal: a deal with a Western oil corporation to infuse Yukos with cash and political links abroad, and a network of allies in Russian politics.
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O
n an afternoon in early 2002, several large black armored cars pulled up outside John Browne’s home in Cambridge, England, and “numerous burly bodyguards” emerged, as Browne recalled it, to scan the horizon. When the bodyguards were satisfied, Mikhail Khodorkovsky stepped out. He went inside to join Browne over lunch. Khodorkovsky struck the BP chairman at first as being an unassuming man, but as he spoke about Yukos and its place in Russian politics, Browne grew nervous.

Khodorkovsky said he was prepared to sell a quarter of his company, plus one share, a percentage that conferred certain rights to the buyer under Russian law. Browne said he did not feel that was enough of a stake in Yukos to justify an investment. “You can have twenty-five percent, no more, and no control,” Khodorkovsky answered, as Browne recalled it. “If you come along with me, you will be taken care of.”

Khodorkovsky went on to talk about “getting people elected to the Duma, about how he could make sure oil companies did not pay much tax, and about how he had many influential people under his control,” as Browne put it later. The BP chairman felt that Khodorkovsky “seemed too powerful” and that there was “something untoward about his approach.” After the Cambridge lunch, Browne broke off negotiations.
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Browne’s account, written later, smacked of some of the benefits of hindsight. But it was true that he now turned away from Yukos as a target for BP’s deeper push into Russian oil. When Browne eventually found another partner in Moscow, it would have consequences for Khodorkovsky and Lee Raymond, just as his fist-mover merger with Amoco had pushed Exxon and Mobil together a few years before.

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ruce Misamore served with Rex Tillerson of ExxonMobil on the U.S.-Russia Business Council’s board of directors and respected him; Tillerson, in turn, had gotten to know Khodorkovsky. It was obvious that ExxonMobil had become a leading partner in the Bush administration’s Russia oil initiative, which might bring the Kremlin to support a sale of Yukos shares.

Misamore was aware, however, of the rumors about Khodorkovsky’s political ambitions in Russia and of his rivalry with Putin—that he might even be planning to challenge Putin or his successor for the Russian presidency. It would be difficult to negotiate with ExxonMobil if Khodorkovsky intended to move openly into political competition with Putin.

One Monday afternoon, Misamore asked his boss about that possibility. He thought Khodorkovsky would be a great president of Russia, he said, but what would it mean for Yukos?

Khodorkovsky said he could never run for president, for two reasons. He was perceived as an oligarch who had stolen his fortune, and while that was not true or fair, he continued, it was a perception so widely distributed within Russia that it was not realistic to think that he or any 1990s-era billionaire could be popularly elected. Second, Khodorkovsky said, one of his parents was Jewish. “There is no way with one Jewish parent I could ever get elected president.” Still, he said, “I am going to be very politically active. I have to be. This is my country.”
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He sounded noble, but his ambition was clearly dangerous, since challenging Putin politically did not look like an easy matter, and it clearly violated the gentlemen’s agreement that generally prevailed between the Kremlin and the oligarchs.

Khodorkovsky backed the Open Russia Foundation with Yukos funds to support civic and philanthropic projects; less publicly, he continued to contribute to the coffers of individual members of the Duma. Soon Khodorkovsky’s lobbyists were seen working the floor of the Duma, relaying instructions to their allies at voting time.
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H
is audacity extended to Washington. Khodorkovsky donated $1 million to the Library of Congress in 2002. Separately, he worked Republican circles and won an invitation to table one at the National Prayer Breakfast, which President Bush attended.
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As in Russia, he advertised himself to the Bush administration as a transformational figure. He traveled to Washington with a PowerPoint lecture outlining how Yukos could improve America’s security as an oil importer.

His presentation was entitled “Russia, the Persian Gulf, and World Oil Supply.” Its thrust was that private oil companies in Russia, led by Yukos, could build a new network of pipelines to export more Russian oil to the United States and China, reducing dependency on unstable oil exporters in the Middle East. One of the slides forecasted that Russian exports of crude oil could more than double to 6 million barrels per day by 2010, out of total production of more than 9 million barrels per day. (The forecast proved to be accurate.)

Khodorkovsky believed that Russia should build new export systems. Lukoil and other privatized Russian companies had already drawn up plans for a new pipeline that would run north to the Russian port of Murmansk, just to the east of northern Finland, on the Barents Sea. Murmansk was free of ice year-round, and while the seas in the region could turn rough, they were navigable by the largest oil tankers.

From Murmansk, “oil can be transported from Russia to the U.S. by a shorter route than the one used for transporting crude from the Middle East,” one of Khodorkovsky’s slides declared. Russia could eventually supply 10 percent or more of American oil imports and serve Europe reliably, too. “The geopolitical imperative for today is to diversify energy sources and concentrate on the most reliable ones,” the presentation declared.
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Given the liquid, interconnected nature of global oil markets, it was not obvious why a Murmansk route would specifically benefit the United States over the long run, other than, perhaps, by providing an additional hedge against supply disruptions elsewhere. But the notion that direct imports by the United States from Russia would bolster geostrategic cooperation took hold at the highest levels of both governments, even among some officials who understood the fungible character of global oil markets. And Khodorkovsky emerged as the most active proponent of this vision in Russia’s private sector.

Khodorkovsky and Misamore believed their Murmansk vision enjoyed the full support of both the Putin and the Bush administrations. Sandy Vershbow, the American ambassdor in Moscow, met regularly with Misamore and encouraged him. Privately, Vershbow was ambivalent. He called Khodorkovsky “sometimes defensive and even threatening” after a private meeting in Moscow in the fall of 2002, where they argued about what sort of contracts should govern future tie-ups between American and Russian oil companies.
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Yet Vershbow, Vice President Cheney, and others in the Bush administration recognized that Yukos, under Khodorkovsky, was one of a handful of Russian oil companies that might be in a position to make a transformational deal.

On trips to Washington, Misamore met with senior officials on Bush’s National Security Council. “They were quite happy to have the diversity of supply,” he recalled, with a rising role for Russia, so as to “move away from the Persian Gulf dependency. The economics made a lot of sense because to the extent that you didn’t have higher shipping cost, that could be translated through in the costs of crude oil to the U.S. There was a great deal of support.”
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It seemed increasingly uncertain, however, where Vladimir Putin really stood on the proposed American oil partnership. Putin thought about the security of energy supply much more as a Risk game player than did the free-market idealists in the Bush administration. He saw oil and gas pipelines as physical valves that he could open or shut as he sought to reward or punish other countries, at least within the former Soviet Union. Russian gas companies and ministries routinely squeezed supplies to customers in Ukraine if they were unhappy about regional finances. Surely Putin was complicit in those squeeze plays.

When he met Putin, Commerce Secretary Don Evans continually tried to impart what he considered to be basic concepts of free global oil markets, that the markets were interdependent, not something that should be conceived of as susceptible to the manipulation of physical supply. Evans was trying to make a subtle argument: U.S.-Russian cooperation would deepen because of oil partnership, but the supplier-customer relationship would be indirect, subordinate to the integrated global market. Putin, on the other hand, seemed focused on ties that would bind Russia and the United States together in a mercantile arrangement. He wanted to explore deals that would connect Russian supplies directly to the United States through long-term contracts and investments. He was interested, for example, in building liquefied natural gas facilities that would bind American importers directly to Russian supply. That was the kind of supplier position Russia enjoyed in Ukraine—Moscow controlled a valve that it could open or close.

“Mr. President,” Evans told Putin, “what you need to do is to quit thinking so much” about direct exports to the United States. The way to build cooperation was through joint corporate deals, investment, and shared participation in the global industry. “We are trying to open up supplies and get more out there in the global market. That’s the big deal. Just get it into the market. It will find its way to the highest price.”
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K
hodorkovsky retained UBS, the Swiss investment bank, to explore how to handle negotiations for the sale of a 25 percent stake in Yukos.
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Lee Raymond was interested in talking. He met with Khodorkovsky late in 2002 at a Bush administration–sponsored energy summit in Houston. Raymond told his colleagues that he found Khodorkovsky to be confident and knowledgeable. The Russian tycoon was probably getting himself too mixed up in politics, but it might be that he had little choice about that, given the intermingling of business and politics in his country.

“I’ll never sell so that you have a majority stake,” Khodorkovsky told Raymond, marking out the same position he had outlined for Browne.

Raymond said that was certainly Khodorkovsky’s prerogative, but in that case, there could never be a deal between Yukos and ExxonMobil. “I would never take a minority stake in Yukos if there wasn’t a clear way to become the majority owner,” Raymond told him.

ExxonMobil’s Russia watchers assessed that Khodorkovsky was increasingly anxious to pull cash out of Yukos. This gave them leverage, they calculated. Rex Tillerson interacted frequently with one of Khodorkovsky’s partners, Yuri Golubev, who began to formulate a way to strike a bargain: ExxonMobil would buy a 30 percent stake in Yukos, with the understanding that it would later go to the Kremlin to win permission for the sale of a majority stake to the American corporation. Whether this was a realistic reading of how Russian politics and oil deals worked was highly debatable, but it reflected the ExxonMobil way abroad: control, contracts, and irrevocable authorities granted at the highest levels.
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Raymond pressed Khodorkovsky about whether he thought Putin would really approve of ExxonMobil taking a majority stake in Yukos. Khodorkovsky said he thought it could be done. Golubev, in his conversations with Tillerson, was more cautious about whether Putin would grant permission. It wasn’t clear whether Khodorkovsky was sincere or gaming them as part of his multifaceted efforts to sell a stake in Yukos. Raymond and Tillerson weren’t sure they could trust Putin, even if he said yes.