Medvedev’s $30bn giveaway

(Business New Europe – bne.eu – March 19, 2013)

The big dollop of egg on Russian Prime Minister Dmitry Medvedev’s face since it emerged a strip of water in the Barents Sea ceded by the then-president to Norway contains more than $30bn worth of oil and gas spells trouble for the already weakened premier.

Russia and Norway had been negotiating for more than 40 years over just where to draw their maritime border and in 2010 Medvedev finally signed off on the compromise. The deal opened up the possibility to explore the region for oil and gas, which is already home to Russia’s massive Shtokman gasfield.

Both countries claimed a 175,000-square-kilometre zone, about half the size of Germany, situated north of Russia’s Kola Peninsula and the Norwegian coast in the middle of the icy northern sea. Quite sensibly, the two sides simply agreed to split their differences and draw the line through the middle of their respective preferred lines.

The issue had bubbled since Soviet times, when the original row was over fishing rights to this bit of the sea. But the game has changed now that serious undersea oil and gas exploitation in some of the harshest conditions in the world are technically possible.

Then on February 27 the Norwegian Petroleum Directorate announced that seismic surveys in waters previously disputed with Russia had found a further 1.9bn barrels of oil equivalent (about 85% of the additional resources could be gas and the rest oil) under the seabed worth an estimated $30bn.

The Russian press piled in to make fun of the already weakened prime minister. “Aleksandr II sold Alaska, Dmitry Medvedev gave Norway the part of the Barents Sea with huge reserves of hydrocarbons,” read the headline in Ekho Russkogo Severa, a regional news analytic portal based in Arkhangelsk. National newspapers, radio and TV stations all followed up with similar withering headlines including references to Khrushchev’s ceding of Crimea to Ukraine.

The fiasco has all but destroyed what is left of Medvedev’s authority since he stepped aside to let Vladimir Putin run for the presidency all but unopposed in May last year. It has also catalyzed rumours that he is headed for the exit as a useful scapegoat for the rapidly slowing economy. From over 5% growth at the start of 2012, the last growth numbers show Russias economy had slowed to 1.4% in February.

Economic prosperity is the foundation of Putin’s power so if it disappears, then he is going to need someone to blame.