Buffett Fooling Self on PetroChina's Darfur Ties

CNPC, effectively Communist China's oil ministry, is a partner with the Sudanese government in oil ventures there. The Sudanese government depends on these oil exports so it can buy weapons.

The key fact here is that even those defending PetroChina, such as Buffett, admit CNPC's role in Sudan's oil industry. They simply argue that this has nothing to do with PetroChina.

Instead, they say that the company, which was partly privatized in 2000, is only a subsidiary of CNPC and has no control over the parent. Buffett says you should no more blame PetroChina for the Chinese government's activities than you would blame, say, congressionally chartered Freddie Mac(FRE Quote) for the Bush administration.

They also argue that divesting their shares wouldn't have any affect anyway.

Right? Wrong?

You'll hear the emotive stuff elsewhere. Here, I'm only concerned with dry facts. The drier, the better. And everything you need to know is contained in the fine print of PetroChina's latest annual report to the Securities and Exchange Commission.

It explains why dumping your shares in PetroChina makes sense.

And why, in this instance, divestment might actually end up doing some practical good.

First things first.

PetroChina's so-called independence from the Chinese government is window-dressing. In Communist China, no state-controlled entities are ever really independent anyway. CNPC is part of the government -- it is, effectively, the Communist Party's oil ministry -- and it owns 88% of PetroChina shares.