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June 25, 2007

The Merchant of Venice, Vladimir Putin, and Energy Supplies

As part of a great Father’s Day present, Mary took me to see Merchant of Venice at the New Globe Theater in London. Shakespeare was a better businessman than you’d expect of a playwright (did well with his partial ownership of the old Globe) and he understood the politics around business better than most politicians.  There’s a lesson for Vladimir Putin and for the rest of us in the Merchant of Venice.

The merchant has pledged a pound of flesh to Shylock as security for a loan which he couldn’t repay on time.  Shylock is pissed off over the elopement of his daughter with (literally) some of the family jewels and also over a lifetime of racial insults from those who never the less need to borrow from him; he insists on collecting the forfeit even though he is offered three times the borrowed amount (late).  The Duke gets to rule on this and the merchant’s friends think the Duke should not permit Shylock to collect the pound of Antonio’s flesh.

Salarino [a friend of Antonio]: I am sure the Duke

Will never grant this forfeiture to hold.

Antonio: The Duke cannot deny the course of law:

For the commoditie that strangers have

With us in Venice, if it be denied,

Will much impeach the justice of the State,

Since that the trade and profit of the citty

Consisteth of all Nations…

In other words, you can’t expect to do much business if you don’t observe the rule of law.

Fast forward to the 21st century. Within the last few months, both BP PLC and Royal Dutch Shell PLC have been forced to sell assets to Russia’s Gazprom at bargain prices or face a series of trumped up charges and probable loss of their licenses to operate their Russian properties. Both companies have also been forced to thank President Putin for being so reasonable and to make the case for Russia being allowed to buy more assets in their countries.

But just today Italy and Russia announced a deal for a new gas pipeline which will greatly INCREASE Europe’s dependence on Russian energy and Russian benevolence. Huh?

One lesson, obviously, is that nations which have a needed commodity don’t have to be as well-behaved as those who depend for their livelihood on trading as Shakespeare’s Venice or even London – especially if such boorish nation is strong enough to prevent its commodity from simply being seized.

In the long term, however, the rule of law still counts.  Hopefully energy companies are considering more carefully what new investments they make in Russia – as well as Venezuela and Nigeria and Bolivia and a host of other undependable hosts including Middle Eastern countries like Saudi Arabia which could just implode.

Which suggests that the US doesn’t have to give incentives to oil companies to drill here even though we do want to reduce our dependence on foreign oil. We need to make sites available with reasonable environmental safeguards and we need to stick with deals we make even when circumstances change. Doesn’t mean we have to countenance any cheating; doesn’t mean we shouldn’t monitor very closely to make sure we get our fair share. But the incentives to drill here are  respect for private property, established law, relative safety, and closeness to a huge market which would like to stop importing.

Shakespeare would’ve understood all that – and much, much more.

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