ConocoPhillips Looks East

It takes a certain amount of courage, perhaps even recklessness, to invest in Russia -- one of the world's fastest-growing economies, but one also derisively and pretty accurately referred to as the Wild East. For the most part, companies that take the risk are old-economy stalwarts, whose size enables them to absorb their losses if the move proves to be a mistake. In May, Alcoa (NYSE: AA  ) jumped into the crime-ridden Russian aluminum industry with its purchase of controlling interests in two aluminum plants. Ford (NYSE: F  ) , Altria (NYSE: MO  ) , and International Paper (NYSE: IP  ) have also worked in the country for years.

One other company that has demonstrated its interest in Russia (and its oil and gas reserves) for years is ConocoPhillips (NYSE: COP  ) . Last week, rumors began circulating that the company was strengthening its ties to Lukoil, the world's second-largest oil company by reserves (after Exxon Mobil (NYSE: XOM  ) ). The CEOs of both Conoco and Lukoil reportedly met with Russian President Putin to discuss investment opportunities in Russia. That meeting took place just hours after Russia announced it would be auctioning off its 7.6% stake in Lukoil in the year's biggest privatization offering. According to at least one source, Mr. Putin "wished Conoco success" in its bid to acquire the stake.

Fool readers will recall that Lukoil and Conoco have a history together. They have cooperated on various ventures in Russia over the past decade. And as recently as January, when Conoco held a garage sale to unload its chain of Mobil filling stations, Lukoil dropped by and picked up two-thirds of the stations on offer.

That relationship, combined with the apparent display of Kremlin support for Conoco's expected bid, suggests that the outcome of the October 2004 sale of the Lukoil stake is preordained. After all, the lessons of YUKOS (read about that story here), and of what allegedly happens to companies that cross Mr. Putin, cannot have been lost on other potential bidders for the Lukoil stake.

Assuming the "auction" proceeds as planned, therefore, Conoco shareholders will soon own a $2 billion stake in the world's second-largest oil company. Their company should also be within the good graces of the Kremlin. So if YUKOS is broken up and sold off for a song to pay its back taxes -- as many investors fear will happen -- that could be an exceedingly profitable place for Conoco to be.

Fool contributor Rich Smith owns no shares of any company mentioned in this article. In various combinations, he has lived, studied, and worked in and with businesses investing in Russia for the past decade.