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 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 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 global aluminium producer United Company Rusal; and who has been attempting to create his own new 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. Gutseriyev fled Moscow ahead of an arrest warrant, and he has been granted asylum in the UK.

The London press is taking the side also of British Petroleum (BP), whose oil venture with Russian partners, TNK-BP,  is under government pressure at the moment. The venture includes assets which, according to a pending US court case, were stolen. This US case, filed in December 2005 in the US District Court for the Southern District of New York, and still proceeding, includes, among the defendants,  BP; Lord Browne (then BP's chief executive); TNK-BP; and Robert Dudley, TNK-BP's chief executive still.

The claim by Canadian oilco Norex Petroleum charges that BP and the associated defendants knowing that other defendants had engaged in the illegal scheme and illegal takeover, nonetheless joined the Illegal Scheme in 2003, and conspired with other Defendants to commit a pattern of predicate acts of racketeering.  Norex is claiming the scheme was the theft and seizure of oilwells, crude oil and cash it owned in the Tyumen region, which are now part of TNK-BP's assets. The case has so far survived jurisdictional challenges; the defendants deny wrongdoing.

BP's supporters are now accusing the Russian government of renationalizing private property, including the property at stake in the New York litigation. Defenders of the Kremlin accuse BP, Glencore and the Russian oligarchs of  taking the country's energy resources at a fraction of their true value. 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.

On Monday, at a cabinet session, he confirmed that a batch of tax concessions will be introduced for oil companies investing in additional output from existing fields, and in new production from greenfields. The tax breaks represent a gross revenue benefit of $20 billion per annum, going directly to the Russian oil producers, and a post-tax revenue gain of $15 billion. If spent as intended, the funds should move on into oilfield services companies.

Most, save for TNK-BP, are seeing their share prices jump. But lifting the Russian oil sector out of its year-to-date stagnation of output leads naturally to government concerns to assure that the benefits stay within the Russian economy, as the oil moves downstream towards its end-users.

The money at stake for the gainers, and the losers, in the grand plan for the oil trade 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 revenue of $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 new 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 this month that Transneft should start delivering oil to Ust-Luga.