In an earlier blog, I wrote about the two types of systems in the world, relationship and rule-based systems. I pointed out that relationship systems are economically less efficient than rule-based systems, because relationships change.

To help their relationships with Russia BP, China’s Chinese National Petroleum Corp., (CNPC), Malaysia's Petronas and an undisclosed fourth buyer agreed to make strategic investments in Rosneft to insure that the IPO succeeded. Both BP and hoped that its investment in Rosneft would create a better relationship with the Russian government so that both BP and CNPC would have sufficient connections and good will to exploit Russia’ oil wealth.

The mysterious fourth buyers are alleged to be Russian oligarches eager to please the Kremlin to avoid sharing a cell with Mikhail Khodorkovsky, the former oligarch head of the now bankrupt Yukos.

I cautioned in my earlier blog that the billions invested in Rosneft were based on nothing more than a hope that the Russian government might be grateful for the investment. It was also possible that the Russian government might change its mind or have different priorities and that the investments in Rosneft did not guarantee a relationship because there were no rules to guarantee a return. I did not realize how quickly the Russian government would change its mind.

First, the Russians snubbed the Chinese. CNPC, had put in an order for $3bn worth of shares in Rosneft but only received a stake worth $500m. Allegedly the Chinese demands for better access to Russia’s oil reserves had backfired. They overplayed their hand and their demands annoyed the Russians.

BP’s reward for its $2 billion was no better. On July 20^th, 2006, Natural Resources Minister Yury Trutnev threatened to revoke TNK-BP’s licenses, because of low production at 24 of TNK-BP's facilities. Mr. Trutnev also threatened Royal Dutch Shell for problems at its liquefied natural gas project off the Far East island of Sakhalin. At least the management at Shell can be secure in the fact that they did not waste $2 billion on a relationship that could sour in two weeks. It would have been better if BP and the Chinese had bet their billions on the law.