In 2005, however, Shell revealed that the development costs had doubled, to $20 billion. On a visit to the Netherlands in November, Putin ‘gave a roasting’ to Shell’s CEO, Jeroen van der Veer. It meant Russia was going to lose $10 billion. It gave Putin the excuse he needed to overturn the 12-year-old deal, which he did by means of plotting and pressuring over the course of 2006. Instrumental to the government’s strategy was Oleg Mitvol, a fierce environmental activist who was deputy head of the government’s Service for Supervision of Natural Resources, Rosprirodnadzor. In May 2006 the service’s representatives from the far east region came to see Mitvol in Moscow and showed him some photographs. ‘It was unbelievable,’ he recalls. ‘There were photos of forests that had been turfed upside down, landslips, total chaos, on a huge scale. I said to them, “What is this?” and they said, it’s Sakhalin Energy building pipelines.’6 The construction work included almost a thousand pipes laid across spawning rivers, preventing fish from swimming upstream.
Mitvol made it a personal crusade. He took journalists to Sakhalin to show them the damage. Rosprirodnadzor estimated it would cost $50 billion just to clean up Aniva Bay, where large-scale dredging had ruined fishing grounds (something denied by Shell).
It was assumed by most observers at the time that Mitvol was simply doing the government’s bidding, digging up dirt to bolster its case against Shell. The press called him the Kremlin’s ‘attack dog’. But he insists that he was motivated entirely by environmental concerns and worked more closely with Greenpeace and other environmental groups than with the Kremlin. He even says he had a call at one point from a ‘very high official’ who was concerned he was being too strident in his criticisms, and ‘spoiling the investment climate’. Other environmentalists I have spoken to say they believe this: they too were appalled by the damage done to the forests and marine life, and they knew Mitvol to be a real eco-warrior, who, among other achievements, also helped to persuade Putin to ban seal-hunting.
That said, Mitvol could never have waged such a campaign against a major foreign investor without top-level backing, and Shell’s position became impossible. In December Sakhalin Energy buckled to the pressure and sold 51 per cent of the project to Gazprom. Putin had succeeded in renationalising the world’s biggest combined oil and natural gas project. At the signing ceremony, the president declared that the environmental problems could now be considered ‘resolved’. The Sakhalin crisis was over, but the Kremlin’s strong-arm tactics caused long-term damage to Russia’s efforts to woo foreign investors.
For Putin, this was just part of a strategy, aimed at ensuring that Russia’s strategic energy resources remained, or were retaken, under state control. Foreign companies were welcome to participate in joint projects, but Russia would never again give away its resources as Yeltsin had so recklessly done. New legislation was drafted to limit non-Russian involvement in 42 industries, including arms and aircraft, fisheries, precious metals and hydrocarbons.
Putin was less squeamish about other countries’ strategic assets. As oil prices rose and the Kremlin’s coffers filled up with petro-dollars, Russia started looking to invest abroad. Gazprom showed an interest in buying Centrica, Britain’s major gas supplier. Then it began talks on acquiring a 50 per cent stake in the Central European Gas Hub at Baumgarten in Austria – the main distribution centre for EU gas supplies. The European Commission blocked the move.
In September 2006 it become known that the state-controlled bank VTB had quietly bought a 5 per cent stake in EADS, the world’s biggest aerospace company, producer of Airbus and a great deal of defence equipment. Putin’s diplomatic adviser Sergei Prikhodko then suggested they would like more – perhaps 25 per cent, enough to block major decisions. When Angela Merkel heard about it she told President Chirac of France in no uncertain terms that this could not be allowed to happen. Chirac and Merkel met Putin at Compiègne, outside Paris, towards the end of September and told him this was one investment that was not welcome.
On a visit to Bavaria the following month, Putin mocked the West for its nervousness: ‘Why the hysteria? It’s not the Red Army coming, but Russian businesses with money to invest.’
A Cold War encounter
It was Saturday 21 October 2006. The last, yellowing leaves were falling from the birch trees outside Putin’s window at his country residence, Novo-Ogaryovo. It was cold and raining. He was already in a foul mood. The previous day he had attended a summit with 25 European Union leaders in Lahti, Finland. It was supposed to be an ‘informal’ meeting, a cosy gathering with no set agenda or agreements to be signed, but nonetheless he had had to listen to a litany of complaints – about the murder of Anna Politkovskaya, about his government’s attempts to squeeze Shell out of the multi-billion-dollar Sakhalin-2 project, about Russia’s unreliability as an energy provider, and about Georgia.
The Europeans explained that they were keen to build a close partnership with Russia’s southern neighbour and deplored the sanctions recently introduced by the Kremlin. But Putin expounded at some length his view that President Saakashvili was hell-bent on regaining the breakaway regions of Abkhazia and South Ossetia, and warned them that this would lead to bloodshed. Only his friend Jacques Chirac supported him, telling the others that relations with Russia were more important than Georgia.
It was the middle of the night before Putin got home. On Saturday afternoon he called his 11 most powerful colleagues – his Security Council – to his residence. He told them about his uncomfortable meeting with the EU leaders, and they considered their options in Georgia. Putin also had an appointment with the US secretary of state, Condoleezza Rice, who was waiting at her hotel in Moscow, but he was not looking forward to it. ‘He didn’t feel like meeting her,’ one of his close aides recalls, ‘but he knew he had to.’
Rice was wondering why their meeting was so delayed. ‘Usually he saw me right away, unless he wanted to make a point,’ she said later.7
After their working session the members of the Security Council drove to a nearby government lodge – a baronial-style chateau at Barvikha – for a special dinner. Three members, including the security council secretary, Igor Ivanov, and the future president, Dmitry Medvedev, had recent birthdays to celebrate.
Here, Putin decided to play a ‘joke’ on Rice. According to one of those present, he looked at his watch, and a mischievous smile appeared on his face. ‘Why do we have to wind things up in a rush? Let’s put on a little show for her. If she wants, tell her I will meet her here, but don’t tell her I’ve got the entire Security Council with me.’
‘It was five o’clock, five-thirty, six o’clock, six-thirty,’ Rice recalls. ‘Finally about seven-thirty they said, he’s ready to see you now.’
She and the American ambassador, Bill Burns, were whisked out into the dark, wet countryside, along the elite Rublyovo-Uspenskoye highway, dotted with ostentatious redbrick mansions, through the ‘Luxury Village of Barvikha’ with its Lamborghini showroom and designer boutiques, and then through the tall iron gates of the government estate.
Rice and Burns had never seen such a building in Russia before – all turrets and dark stairways, like Dracula’s castle. Suddenly the doors of the dining room were flung open and the Americans were confronted with an unexpected sight – the full Russian Security Council, the very heart of Russian power, around a banquet table. Burns ‘could hardly take breath’, according to one witness, while Condi was full of composure. ‘Oh,’ she said, ‘it’s the Security Council.’