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News analysis in Business Day, Johannesburg

By John Helmer in Moscow

A campaign of smears and innuendo linking Russian Prime Minister Vladimir Putin to powerful Russian oil interests, launched last week by a newspaper in London, has drawn a withering counter-attack by Gennady Timchenko, controlling shareholder of Gunvor, and one of the leading oil traders in the world.

The Geneva-based trading firm is challenging Glencore and Vitol for control of the multi-billion dollar Russia oil export trade, the world’s largest.

In a letter to the Financial Times, published on May 22, Timchenko accused the newspaper of reporting “inaccuracies and false claims…misleading ambiguity…conspiracy theory [and] unwarranted suggestions.” In a hint that commercial rivalry from Glencore and Vitol, who have been losing their Russian positions to Gunvor, are behind the published attacks, Timchenko wrote: “Gunvor is what it seems…When it comes to price — ask our rivals and study our record in open tenders. The truth is there for all to see.”

The target of Timchenko’s reply was a report on May 15 by Moscow-based Financial Times reporter, Catherine Belton. She alleged that Timchenko and Putin have been friends since their service days in Soviet intelligence; and that Timchenko’s business success is due to shadowy political and personal favours, and discount pricing of oil, as it moved from wellhead and refinery to loading port and destination.

Making his first personal defence against allegations, which have been circulating for some time, Timchenko said “media suggestions about the extent of any ties between me and Mr Putin are overblown.”

Behind the gossip, there is political and commercial significance in the new attacks, as the new Russian President, Dmitry Medvedev, is being lobbied to release imprisoned oil company owner, Mikhail Khodorkovsky, from his 8-year prison sentence; and to back foreign investors in the Russian oil sector against state-owned Russian oil companies, which Mr Putin championed during his presidential term.

Belton, the author of the FT attack on Timchenko, has been supportive of Khodorkovsky, and of Oleg Deripaska, another Russian with an axe to grind against Timchenko and Gunvor. Khodorkovsky was the controlling shareholder of the Yukos oil group, when he was arrested in 2003, and subsequently tried on fraud and other charges; convicted; and sent to prison, where he remains. The Yukos group was convicted of massive tax evasion, and its assets sold to Rosneft, the state-owned leader of the Russian oil industry today. Rosneft trades through Gunvor.

Belton is also close to Deripaska, who controls aluminium producer United Company Rusal; and who has been attempting to create a new Russian oil company after state prosecutors moved last year against Mikhail Gutseriyev and his Russneft group. Glencore is an equity partner for Deripaska in both Rusal and Russneft. State permission for Deripaska to take over Russneft has not been granted, however.

The London press is taking the side also of British Petroleum (BP), whose oil venture with Russian partners is under government pressure at the moment. The venture includes assets which, according to a pending US court case, were stolen. BP’s supporters accuse the Russian government of renationalizing private property. Defenders of the Kremlin accuse BP, Glencore and the Russian oligarchs of taking the country’s energy resources at a fraction of their true price. The attacks on Gunvor, Timchenko and Putin are part of the fight to shift Medvedev in the direction of the foreign commercial interests, and against the Russian nationalists.

Prime Minister Putin announced recently an ambitious bid to concentrate oil trading in Russian hands; create new Russian oil ports on the Baltic; and build a new generation of oil and gas tankers in Russian shipyards.

The money at stake for the gainers and losers in this plan is enormous. On 2007 estimates, Glencore reported revenues (including oil and non-oil trading) of $142 billion. Vitol says that in the same period it generated revenue of $100 billion; while Gunvor reported $43 billion. This year, Gunvor is projecting $70 billion.

Gunvor is increasing its share of the rising volume of Russian exports of both crude and petroleum products. It is cooperating with Zarubezhneft (“Foreign Oil”), a state owned oil company, in the planning for a 11-million tonne capacity oil terminal at Ust-Luga, a new Russian port on the Gulf of Finland, near St. Petersburg.

Transneft, the state owned oil pipeline company, also controls Primorsk, the first of the new Russian oil ports on the Baltic, which are ending Russian reliance on the ports of Lithuania, Estonia, and Latvia to load oil tankers. Transneft had been reluctant to deliver oil to Ust-Luga, until the former Zarubezhneft executive Nikilai Tokarev took over at Transneft last October. Putin made clear last week that Transneft should start delivering oil to Ust-Luga.

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