BP may pay price of Emirates-U.K. spat

Nov. 28, 2012 at 2:35 PM
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ABU DHABI, United Arab Emirates, Nov. 28 (UPI) -- BP could be cut out of its stake in the United Arab Emirates' giant concession in the Persian Gulf because of a diplomatic wrangle with Britain that is degrading London's relations with the oil-rich gulf monarchies.

The 75-year-old concession, which BP shares with Anglo-Dutch Shell, Exxon Mobil of the United States and Total of France, is coming up for renewal and Emirates officials have already cut BP out of the "big list" of oil companies invited to bid for the concession.

The political rift arises from the gulf states' growing alarm at Iran's drive to expand its influence across the strategic region, its missile buildup and nuclear ambitions, as well as British criticism that they're suppressing democracy and legitimate Muslim demands for more open governance.

This, the Financial Times observed, "highlights a broader problem facing London's diplomacy in the gulf.

"While the U.S. is insulated by the security cover it offers the monarchies against Iran and other potential threats, Britain's more vulnerable position was exposed again last month when Saudi Arabian officials condemned a decision by a U.K. parliamentary committee to investigate the relationship between London and Riyadh."

The fear is, of course, that this will be a template for future trade links between the gulf monarchies and Western governments that seek to pressure them into embracing democratic values, conditions not imposed by China in its global drive to secure energy resources and raw materials.

Abu Dhabi, the economic powerhouse of the Emirates, is one of the few gulf states to allow Western companies to drill for oil.

The concession, which contains half the Emirates' oil reserves of 98 billion barrels, comes up for renewal in 2014.

BP has a 9.5 percent stake in the concession, which produces 1.4 million barrels per day, alongside the other Western majors and the Abu Dhabi National Oil Co.

Losing the concession would cost BP 125,000 bpd, around 3.5 percent of its total global production.

Given that BP's struggling to keep its volumes from tumbling amid its efforts to sell its 50 percent share in TNK-BP in Russia, that's a significant amount.

The concession's a hangover from Britain's imperial past in the gulf, which ended in 1971.

The concession has been the preserve of Western oil companies since the vast oil field was thrown open in 1939, when Britain was the dominant power in the gulf.

But it may now be thrown open to other bidders and the high-rolling Chinese, scooping up oil deals across the Middle East and Africa to fuel their expanding economy, are tipped as strong contenders as gulf oil exports are increasingly directed toward Asia rather than the West.

BP has found itself cut out of the bidding, not through anything it's done, or not done, but because of political tensions between Britain and the Emirates over London's criticism of a crackdown on Islamists amid the upheavals of the Arab Spring.

The United Arab Emirates, Saudi Arabia and the other tightly controlled gulf monarchies are increasingly nervous about the growing clamor for democracy that has swept the Arab world since early 2011 and which they're battling to head off among their own people.

Most of the British criticism of the gulf states has come from Parliament rather than the government.

London's insistence it cannot control parliamentary committees cuts little ice with ruling families for whom democracy is anathema.

The difficulties have also threatened Britain's arms sales to Saudi Arabia and the gulf monarchies, long a key market for Britain's defense industry, now faced with major spending cuts at home.

British Prime Minister David Cameron was prompted to tour the region in early November to patch up relations and secure major contracts, like the BP deal in Abu Dhabi.

It isn't clear whether he made any headway on that or in convincing the gulf states to buy 100 Eurofighter Typhoon strike jets worth $9.6 billion.

But Britain's liberal Guardian daily dismissed Cameron's rescue mission as doomed.

"For Britain now to find itself on both sides of the barricades at once -- backing the democratic revolution once it has happened, but selling arms to the autocracies that are fighting tooth and nail to stop it spreading -- is a monumental and venal folly," it declared.

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