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BP deal amplifies Kremlin's business message

* BP deal follows image-battering Khodorkovsky trial

* Kremlin wants to keep business separate from politics

MOSCOW, Jan 18 (Reuters) - After a hail of Western criticism over a new verdict against jailed ex-tycoon Mikhail Khodorkovsky, Russia's big oil deal with BP Plc BP.L sends just the message the Kremlin wants the world to hear: business is business.

State-controlled Rosneft's ROSN.MM share swap and Arctic exploration tie-up with BP will fuel Russia's confidence that it can boost trade and attract investment without giving ground on domestic policies viewed with distaste in the West.

Russia’s leaders know the country’s creaky economy needs foreign cash and expertise, and President Dmitry Medvedev has courted global goodwill by talking up modernisation and reforms to crucial institutions like the courts and police.

Prime Minister Vladimir Putin told subordinates late last year that amid stiff competition to attract investment following the global financial meltdown, Russia must do better to set “honest and clear rules” and cut red tape.


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But the Kremlin has signalled that it is not prepared to woo Western cash or warmer ties by broadening rights and freedoms, drawing a line with repeated crackdowns on its opponents.

“Russia will not meet the demands of the West,” said Sergei Markov, a Kremlin-connected political analyst and lawmaker from Putin’s United Russia party. “Talk about investment and talk about democracy have nothing to do with one another.”


Russia’s energy riches make it a tantalising destination for foreign companies despite daunting corruption and doubts about the rule of law -- deepened when a court added six years to jailed ex-tycoon Khodorkovsky’s prison term on Dec 30.

Sharply criticising the trial, Western governments warned that Russia would not curb its energy dependence if it failed to implement the rule of law and push through reforms needed to modernise the economy.

Yet despite Mevedev’s talk of the need to diversify the economy away from oil and gas, the BP deal suggests Moscow will continue to wield its oil wealth as a tool to lure foreign investment and strengthen its clout worldwide. [ID:nnLDE70G175]

BP’s troubles after its Gulf of Mexico spill helped Rosneft win advantageous terms with a global major that cannot afford to lose Russian opportunities.

The Kremlin is likely to pursue more such alliances worldwide and, in its view, Western concerms about rights and democracy and Russia must not be a barrier.

Any attempt to condition security or commercial ties on compliance with human rights demands is a “road to nowhere”, Foreign Minister Sergei Lavrov said at an annual news conference last week meant to set the tone for 2011.


That is a message Russia has laboured to convey since the 2000-2008 presidency of Putin, accused by the West of backtracking on democracy and stifling dissent. It could hardly have come across clearer than it did in the final days of 2010.

On Dec 30 Khodorkovsky, the long-jailed former Yukos oil company chief widely seen in the West as a victim of Putin’s Kremlin, was sentenced to stay in prison until late 2017 after a politically charged theft and money-laundering trial.

The BP deal is coloured by Khodorkovsky’s case because Rosneft became Russia’s largest oil company by snapping up former Yukos assets after Khodorkovsky’s firm was bankrupted by tax claims following his gunpoint arrest in 2003.

Khodorkovsky has accused Putin’s energy tsar Igor Sechin, now a deputy prime minister and the Rosneft board chairman, of engineering his prosecution and the dismantling of Yukos, once Russia’s largest oil producer.

Britain, the fifth largest source of foreign investment in Russia, joined other Western nations in criticising the verdict. Foreign Secretary William Hague said he was “deeply concerned” and suggested the trial was a “retrograde step.”

But a spokesman for British Prime Minister David Cameron set the BP-Rosneft agreement apart from long-strained diplomatic relations on Monday, saying it was “a commercial deal between two companies” with no British government political involvement.

Editing by Ralph Boulton