There are many stories of Western oil-company adventures in Russia. Some of them end well, and some of them end badly.

Take the company formerly known as British Petroleum. BP has had its share of troubles in Russia. However, since partnering in 2003 with AAR Consortium—a group of Russian-born billionaires that includes Mikhail Fridman’s Alfa Group, Len Blavatnik’s Access Industries and Viktor Vekselberg’s Renova, it was like roller coaster. The joint venture has been quite productive. TNK-BP is now Russia’s third-largest oil company, pumping two million barrels of oil equivalent a day.

But infighting between BP and its oligarch partners has taken a toll. It precipitated the ouster of TNK-BP president and CEO Bob Dudley in 2008. (AAR accused him of favoring BP.) Last year, BP tried to create a joint venture with Rosneft to explore the Russian Arctic for oil and gas. But that deal—an evident attempt to bypass AAR—fell through, and Rosneft contracted with Exxon instead.

Late last month, the tensions erupted as Mikhail Fridman suddenly resigned as TNK-BP’s CEO. Shortly thereafter, BP announced its intent to sell its stake in the venture, valued at some $25–35 billion.

Reuters recently reported that BP had received an unsolicited bid from an unnamed Russian state-controlled bidder. However, both Rosneft CEO Igor Sechin and Gazprom CEO Alexei Miller have denied making overtures to BP.

TNK-BP has been plagued by cantankerous relationships, not just between BP and the oligarchs but also with the Russian state. For example, TNK-BP—primarily an oil company—long struggled to kick-start gas production at the East Siberian Kovykta field. State-controlled Gazprom blocked access to its pipelines, forcing a TNK-BP subsidiary into bankruptcy. In March 2011, Gazprom swallowed the prey.

The situation is even more intricate. Fridman almost certainly would have consulted with the Kremlin prior to pulling the plug on the proposed Rosneft deal with Rosneft. The AAR owners’ main goal, notes Kommersant, is to move assets abroad, away from the tight grip of the Russian state.

Thus AAR must be nervous at the thought of the Russian government making a run at BP’s stake. Such a sale would leave them one-on-one with Gazprom’s Sechin, who has quite a reputation. A former intelligence colonel and the right-hand man of Russian president Vladimir Putin, Sechin is the one who destroyed the YUKOS oil company in 2003, expropriating its assets, moving them to Rosneft and putting its founder, Mikhail Khodorkovsky, in the labor camp.

High Stakes for All

Last week, BP ramped up the pressure, pointing out that its agreement with the oligarchs permits the sale, with or without their consent. But BP condescended: the partners would be offered a chance to buy BP’s stake if they wish.

Buying out BP’s stake would give the Kremlin control over 50 percent of the country’s oil output. But oil prices are going down, not up. The government needs the Ural crude price at $115 just to balance the state budget. Currently it stands at just $99.

This sale, if it materialized, would deliver another blow to Russia’s flimsy attempts to modernize its economy and lure foreign investors. The country currently ranks abysmal 120th in the World Bank’s Doing Business rating—a far cry from Putin’s envisioned 20th place. And Russian investors are eagerly sending capital abroad. According to the Central Bank, capital outflows reached $35.1 billion in the first quarter, nearly double the $19.8 billion seen a year earlier.

Yet return on investment in the corrupt Russian energy sector can still be very high. Since 2003, TNK-BP has delivered great profits to its shareholders. TNK-BP accounts for about 30 percent of BP’s production and reserves as well as about 20 percent ($3.8 billion) of its annual earnings. The British company has turned its $8 billion initial investment into $19 billion worth of dividends and could realize an additional $25–35 billion in selling out its interest—not bad business at all, despite all the aggravation.

Meanwhile, TNK-BP is getting close to going global. It plans to start operations in Vietnam and Venezuela, complete block acquisitions in Brazil and develop gas business to compete with Gazprom. The Russian shareholders have benefited hugely from BP’s technical expertise and global reach.

The stakes for all parties are high. If BP loses access to Russian hydrocarbon reserves, it could seriously damage the British energy giant’s long-term prospects. But BP’s exit could wind up giving Russia’s state-dominated oil sector a huge boost in reserves. Should Moscow acquire BP’s share in TNK-BP, it may then expand Rosneft’s publicly offered shares—and in the Kremlin, proceeds from such offers often wind up lining the pockets of insiders. Moreover, the acquisition may buttress Putin’s goal of making Russia the world’s energy superpower just as the second wave of the global economic crisis is coming ashore.

Ariel Cohen, PhD, is senior research fellow in Russian and Eurasian Studies and International Energy Policy at The Heritage Foundation. Dmitri Titoff assisted in preparation of this article.

Image: Gorchakow