Khodorkovsky's pipedream comes true

By bne IntelliNews September 15, 2010

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The irony of it. On August 29, a new oil pipeline connecting Russia's oilfields with China's underdeveloped northeastern territories came online - the very pipeline that Yukos had championed and was a big cause of Mikhail Khodorkovsky's clash with the Kremlin.

The pipeline runs from Russia's most productive western Siberian oilfields to Daqing in China. The Chinese segment is still under construction, but is scheduled to be completed by the end of October. Eventually, the pipeline will provide 30m tonnes of oil a year to China.

The pipeline makes some economic sense, as it is short (1,000 km) and the Chinese appetite for oil seemingly insatiable. However, it makes no geopolitical sense at all, as the pipeline ends in the middle of nowhere; the point with pipelines is that once they are built, the seller is hostage to the buyer because it can be turned off at any time during a dispute. The Kremlin was irked with Khodorkovsky because it wanted to build the far longer (and economically questionable) pipeline to Nakhodka in the Far East, which would allow it to ship the oil elsewhere in Asia during any dispute with China.

The Kremlin accused Khodorkovsky of trying to make Russian foreign policy with the Daqing pipeline and tried to block it. Khodorkovsky rolled out the big guns to make the pipeline happen, even roping in then-PM Mikhail Kasyanov to vouch for the pipeline (whose support surely contributed to his sacking). The row escalated and ended with Khodorkovsky's arrest in October 2003.

If only Khodorkovsky had waited a year. By 2004, China's unstoppable rise had become obvious to everyone and the Kremlin did a sharp volte face. By the end of 2004, Russia was shipping as much oil as it could by rail to China (ironically, using the impounded Yukos rolling stock). And the burgeoning affair blossomed into formal oil and gas pipeline deals at the end of last year that are the geopolitical equivalent of marriage.

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