As the dust settles on the BP-Rosneft Russian oil deal it’s going to be intriguing to see what negotiating tactics BP employs from here in order to try and make the deal a success.

There is plenty of potential for BP in the deal. It has already taken some advantage of the windfall of its US$12.3 cash from the deal and promised an increased dividend for weary shareholders whose returns have been battered since BP’s disaster in the Gulf of Mexico. It will now have a stake of nearly 20% in the world’s largest oil company, as well as a ringside seat as exploitation of Russia’s arctic oil reserves gets underway. It also escapes the stalemate with Russian oligarchs that had afflicted its preceding Russian joint venture, TNK-BP. However, there are obvious negotiating dangers arising from this Russian bear-hug.

Negotiating Dangers

For a start, there are some social norms that are a useful starting point to negotiating in Russia. They don’t apply all the time because every negotiation is different and every individual is different, but it’s important to be aware of these norms.

Russian negotiators are often fairly tough with an attitude of making maximum initial demands in return for minimal concessions. Use of Tough Guy tactics like aggression, threats, setting deadline pressure, using take it or leave it tactics is quite common. It is normal for contracts to represent only a snapshot of agreement, so that the terms continue to be negotiated. So BP cannot assume that just because agreement has been reached now, that means the negotiation will stop.

In this ongoing negotiation BP has a further problem because it will be a minority shareholder in Rosneft without much control and dealing with a hard-nosed partner. How will BP protect its dividends? And it’s flow of oil? 25 percent of its oil would now come from Russia. Rosneft has promised to pay 25 percent of its earnings back to shareholders every year, but this is a paper promise and Russia is not always a reliable jurisdiction in which to enforce contracts. Furthermore Rosneft has very close links with the State. Igor Sechin who runs Rosneft is Putin’s former chief of staff. This gives Rosneft a powerful form of bargaining power in negotiations called Referral power – the power to refer to a source of authority which is not in the room.

What can BP do about all of this?

1. Marshal its own bargaining power – BP has scale and expertise. It also provides legitimacy – this is an important “standard” for a company like Rosneft as it takes its position as the world’s biggest listed oil company, so BP has something to offer. Developing good links with the Russian hierarchy will also be critical – this gives you Network power – close connections are everything in Russia.

2. Be smart in bargaining – If you are dealing with tough guys it’s important to look for incentives and pressures you can use to broker agreement. State your expectations strongly – reasonableness may well be interpreted as weakness. Take plenty of breaks to reduce the pressure on yourselves. Keep concessions back to the end – you will need them.

3. Know how to deal with tough guy tactics – Probe at false deadlines and ultimatums. Make sure the other side knows that you know what they are doing. Ask them if they would like you to behave the same way, or what they would do if someone was playing it tough with them? This may sound dangerous but actually if you make it clear that you know what’s going on they will often drop these tactics.

4. Adapt to their behaviour – If they are behaving emotionally and making extreme demands then mild-mannered British self-restraint may not have much impact on them.

Having worked for TNK-BP in Russia, Bob Dudley will know all about these challenges. And he will also know that BP will need to be at the top of its negotiating game to turn the promise of the Rosneft deal into reality.