On January 15, British Petroleum (BP) agreed to form a joint venture with Russia’s state-owned Rosneft to develop three of Rosneft’s offshore exploration blocks in northern Russia. The two companies will jointly explore for oil and gas in the Russian Arctic, one of the world’s last remaining unexplored hydrocarbon basins. Rosneft will receive BP shares equivalent to a 5 percent stake, valued at $7.8 billion, while BP will receive a 9.5 percent stake in Rosneft, in addition to the 1.3 percent it already owns.

Hailed by First Deputy Prime Minister Igor Sechin, Putin’s key ally, the deal is a ground-breaking step in the global oil market and makes Russian state-owned giant Rosneft, which Sechin chairs, the single largest BP shareholder.

Since 1997, BP has had the longest presence as a Western oil company operating in the Russian energy market. In 2003, BP established its Russian joint-venture, TNK-BP, the largest foreign investment in Russia, a result of the merger of Russian companies TNK, SIDANKO, and Onako with the majority of BP’s Russian oil assets. The company was 50 percent owned by BP and 50 percent by a group of Russia-connected investors: Alfa Group, Access Industries, and Renova (AAR).

That partnership ended in tears: TNK-BP lost its ownership over the giant Kovykta field in eastern Siberia to Gazprom. The Russian billionaires who own AAR pushed Robert Dudley, the current CEO of BP, out of the country and installed Maxim Barsky, a man to their liking, in his place.

The Kremlin-controlled Rosneft has grown to be an oil giant because of the company’s ownership by the Government of Russia (GOR). In 2003, following drummed-up tax claims, the GOR presented YUKOS—once Russia’s biggest publicly traded oil company, controlled by Mikhail Khodorkovsky—with a series of tax claims that amounted to $27 billion. In a non-competitive, tightly state-run auction, Rosneft acquired ownership of YUKOS’s principal oil producing entity, Yuganskneftegaz. These assets were essentially expropriated by the Kremlin after YUKOS’s breakup. Khodorkovsky was sentenced to nine years in prison in 2005 and again to 14 years in December 2010. The majority of legal experts agree that there was no sufficient evidence against YUKOS’s owner to convict in both cases, and the harsh prosecutions were political.

The Council of Europe has condemned Russia’s campaign against YUKOS and its owners as manufactured for political reasons and a violation of human rights. Sechin, the chairman of Rosneft, was the political power in charge of the YUKOS breakup.

The top tier of the Russian political leadership and Russia’s state-owned energy companies (often referred to as Russia’s “national champions”) enjoy a close, mutually beneficial relationship where the Kremlin insiders and top managers of energy firms operate under an opaque system of sharing political and commercial incentives. No major deal in the Russian energy market happens without a prior Kremlin approval.

For Rosneft, the Friday’s agreement is a lucrative opportunity to pick up BP shares while the prices are still depressed following the Deepwater Horizon disaster last year. The deal also grants Rosneft much-needed technology and expertise in offshore development. While BP gets Rosneft stock, which is underperforming, it also gets access to much-needed barrels in the ground—for now. Russia is a harsh place for oil companies. But there is more.

The deal may have a number of negative political ramifications. First, allowing Rosneft, a Russian state-controlled company, to become its second largest shareholder of BP—which provides one pound sterling out of every three to the British pension funds—would create additional leverage for the Russian government in the United Kingdom. Second, it leverages Russian influence in those numerous countries where BP is active. Last but not least, BP may share ownership in the allegedly illegally appropriated assets from YUKOS, which Rosneft acquired for less-than-market price valuations and are tied up in litigation in Europe and against which U.S. YUKOS shareholders may have claims.

Oil, like politics, makes strange bedfellows, and, the BP–Rosneft deal is the latest example. According to the international watchdog Transparency International, Russia is notoriously corrupt. Oil companies, which owe fiduciary duty to their shareholders, have to follow the caveat emptor dictum when getting in bed with Russia’s strongmen and the state-owned corporations they control.