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If anyone needed convincing, the paper which British Petroleum (ticker BP:LN) signed yesterday with Mikhail Fridman and his Russian shareholding partners proves that defying the law of gravity is unlikely to succeed for long; even if the world's weakest prime minister, Gordon Brown, and his foreign minister David Miliband, have tried to stake their short-term political careers on it; and even if the Financial Times has tried to make the inevitable fall appear to be a masterly exercise in BP negotiating skill.

To hang on to the 23% of its global oil reserves located in Russia, 25% of its current oil production, and a comparable amount of its market capitalization, BP has been trying to defy a losing position since Robert Dudley, BP's chief operative in Moscow,  was found out, having tried to negotiate secretly with Gazprom the sale and purchase of the 50% stake in TNK-BP.

TNK-BP (TNBP:RU) is the 50/50 joint venture which BP shares with the Russian trio of Fridman, Len Blavatnik, and Victor Vekselberg; reflecting the names of their respective holdings, Alfa, Access and Renova, they are collectively known as AAR.

Dudley, BP's chairman Peter Sutherland, and chief executive Tony Hayward, may have thought their proposed deal had the blessing of Gazprom's chairman at the time, Dmitry Medvedev, and Gazprom's chief lawyer, Konstantin Chuichenko. By the time the latter duo had moved into the Kremlin in May -- Medvedev as president, Chuichenko as head of the president's Main Control Department -- Dudley and his masters had apparently convinced their contacts at Downing Street and the Secret Intelligence Service that their scheme was a test of strength between the new Russian president, and Prime Minister Vladimir Putin and his deputy, Igor Sechin, who are usually in charge of such matters. Sechin is also chairman of the board of Russia's leading oil company, Rosneft.

Fridman identified the folly of foreign companies playing Russian politics against Russians, claiming publicly that Dudley's secret not only violated the terms on which he worked as chief executive, reporting to both sets of shareholders on the TNK-BP board. It also violated the elementary rules of Russian politics -- there are no secrets; and there are no one-sided deals.

According to both Financial Times and Russian media reports and public statements by BP and AAR, the September 4 memorandum of understanding between Hayward and Fridman -- if it sticks -- requires Dudley to be ousted by December 1. This was the first, and principal demand of the Russians throughout the six-month conflict, since BP's hapless Gazprom deal was uncovered, and Medvedev lined up with Putin and Sechin to repudiate it.

Alastair Graham, head of BP Russian Investments, had told the FT six weeks ago that the campaign against Dudley was "a smokescreen for [the Russian] attempts to seize control of TNK-BP." In fact, BP had been trying to take control of TNK-BP from AAR. If you believe the former, you can declare the reported new deal, a victory for BP. According to the FT, the agreement is BP's victory because it "preserves its 50 per cent stake in TNK-BP after a struggle with its local partners that focused attention on the rights of foreign investors in Russia. The memorandum of understanding, agreed this week by BP's board, follows a long-running dispute over BP's most important international venture....The outline agreement, steered by Tony Hayward, BP's chief executive, and chairman Peter Sutherland, was reached after fears that BP's interest in TNK-BP could be at risk because of its fight with its Russian oligarch partners. BP's control of TNK-BP had also come under pressure from multiple investigations by the Russian authorities into its labour practices. Under the deal, the 50-50 equity split of the partnership would remain unchanged."

In a briefing on the agreement he has signed, Hayward claimed yesterday: "the outline deal announced today, provided the details can be agreed in good faith, is an acceptable compromise. " Sechin announced: "We are pleased that the conflict has been settled and the parties to the negotiations have reached an agreement on the shareholder level without involving third parties, including the state. This sends the right signal to the entire market." 

If you are the Russian shareholders, you see the outcome positively, but not in the way the British have reported. According to the press reports, the replacement for Dudley, and new CEO of TNK-BP,  must be independent of BP, and his powers will be substantially reduced from Dudley's prior mandate -- a big loss for the men who sit on St. James's Square, BP's headquarters in London.

Other reported provisions indicate that the holding company for the joint venture will now have 3 independent directors, and 4 each for BP and TNK-BP. But the affiliated and subsidiary companies will remain at parity between the Russian shareholders and BP. BP thus loses operational control. In addition to Dudley, its key financial and operational executives have already resigned, and more than half of its secondees on the TNK-BP payroll have lost their Russian visas, and been reassigned.