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BP to Russia: Fool Me Twice, Third Time Lucky?

It appears that BP for one is having no luck doing business in Russia. The FT reports:

BP has a remarkable ability to make enemies in Russia. As bailiffs raided one of its Moscow offices on Wednesday, it was hard to avoid the sinking feeling that it may once again be on the wrong side of the authorities there. A day after BP was elbowed aside by ExxonMobil as the preferred Arctic exploration partner for Rosneft, the omens do not look good.

This should not have come as a surprise — BP has been burned by Russia before. In 2007 Moscow threatened BP and ultimately forced the company to sell off prized assets to Gazprom. A couple of years later I met with a senior BP official who assured me that their relationship with Russia was rock solid and that this time the company’s Russian investments would work out. Wrong again.

Political leaders are often attacked for decisions that turn out wrong; in reality gigantic and expensive mistakes are more common in the world of business and finance than is generally appreciated  Business leaders have a long track record of getting global shifts wrong.  Italian oil companies, for example, seem to have thought that Syria was not only a safe bet; working with Syria on oil was part of preparing Italian interests to benefit from Iran’s inexorable rise in the Middle East.  We shall see how that works out.

As the third largest energy company, BP can absorb the loss of its coveted Arctic program. But as FT notes, “A share price drifting at under 400p suggests that investors are not convinced that [the new ventures] amount to a strategy.” Investors are right that BP lacks a proper strategy, but they’re wrong if they think BP is alone in this.

I do however wonder how many more times BP will invest large sums of money on the assurances of Russian partners that, this time, absolutely nothing can go wrong.

Economics as well as geopolitics often trips businessmen up.  The ‘masters of the universe’ who brought us the subprime mortgage crisis misunderstood the risks they were taking on and the nature of financial markets.  The Big Three automakers in the US have been flailing for decades — ever since Volkswagen demonstrated that American consumers wanted better vehicles and better deals than Detroit knew how to share, the American car makers have had their clocks cleaned by wave after wave of foreign competition.

Business as well as government must become smarter, nimbler, and better at learning from mistakes.  The blue social model fostered large and ungainly corporate structures; lumbering dinosaurs with very small brains.  That wasn’t really good enough in the recent past; blue model thinking in the executive suite will certainly not be good enough in the post-crisis economy now taking shape.

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  • M. Simon

    The ‘masters of the universe’ who brought us the subprime mortgage crisis

    You are referring to Barney Frank, Chris Dodd, and Fannie and Freddie?

    Because no way business is going to be handing out so many toxic mortgages without a safe place to dump them.

    The CRA lifted the bottom of the pile and the rest of the pile with it. Fannie and Freddie backed them up by covering the higher levels of the pile.

    I’m not sure you are aware of this but Fannie and Freddie are writing >90% of the mortgages these days.

    Business can certainly cause accidents. But it takes government help (big time) to produce a catastrophe.

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