Putin has relied upon the inherited wealth of the hydrocarbon sector to circumvent change and shore up his power. His fortunes are now tied to oil and gas more than ever before, despite the fact that Russia is quickly running out of cheap oil. In the near future, petroleum reserves will become much harder and more costly to access. The gas deal with China underscores Russia’s vulnerability. After more than a year of haggling, it is clear that Putin signed up for low-priced gas deliveries that depend on a yet-to-be-built costly infrastructure from a position of weakness.
If 2014 is the year that Putin officially revealed his intentions, in retrospect it might also be viewed as the pinnacle of his power and Russia’s global pretensions. __ Paul Hockenos from Berlin
Why is Putin in such a hurry?
Russian president Vladimir Putin is in a hurry to re-build the grand Russian / Soviet empire. In doing so he is taking shortcuts and using hasty strategies that make Russia a less pleasant place to live, and weaken the long-term prospects for the Russian economy to develop into a diversified, self-organised entity.
We will look back at 2014 as the year Russian President Vladimir Putin pushed all his chips into the center of the table — risking everything to make Russia a world power again…
… A cornerstone in Putin’s power play, Russian oil and gas supplies are essential to a resurgent Russia. Only Saudi Arabia exports more oil than Russia, which boasts nearly a quarter of the world’s (non-OPEC) oil production. But Russia’s lopsided dependence on its petroleum revenues (which account for 70 percent of the country’s annual exports and 52 percent of the federal budget) undermines its political stability in the long run. Putin’s recapture of the mineral extraction industry from the private sector has hastened the country’s slide into authoritarianism and state-controlled capitalism. __ Paul Hockenos: Russia’s Oil Curse
Since the days of the Tsars, Russia has always had an authoritarian, top-heavy government. Under the Soviets, central dictatorial control of the economy and society went to extremes — like a body-builder taking too much steroids and other artificial stimulants. Although outwardly healthy, the Soviet system began a long implosion — hastened by volatility in global energy prices.
The “curse of oil,” a phenomenon in which mineral wealth corrupts autocratic states and often leads to civil strife, is usually the misfortune of underdeveloped countries. Russia … clearly has many of the same risks as the “petrostates”: namely, lack of democracy, domestic conflict, stunted reforms, high corruption and economic disarray.
In the past 25 years, Russia’s petrochemical resources have lifted the country out of the dumps but also brought it crashing down. They also created favorable conditions for Putin to amass power in an ever more centralized state, silence the opposition and civil society and, as of 2014, assert a claim to great-power status by annexing a sovereign territory.
According to Michael L. Ross, the author of “The Oil Curse,” petroleum-rich states that rely on extraction of rents from state-owned assets, rather than the tax revenue of their wage earners and productive sectors, tend to be more authoritarian. Those states, for example, are not beholden to their citizens in terms of expenditures. Accountability is indefinitely suspended while social services and infrastructure projects are given or taken away arbitrarily by a paternalistic state. __ Oil Curse of Petroleum Dictatorships
Oil dictators have more power to dictate the terms of existence for the citizens of oil dictatorships. When an oil dictator also displays megalomaniacal tendencies, interested observers should take warning.
… oil-addicted countries are constantly at the mercy of the world market, which makes long-term planning impossible. Their economies are extremely sensitive to marginal shifts in supply and demand. In a volatile industry such as energy, the country’s fate is determined by prices, which can mean boom or bust. The lack of transparency inherent in petrochemical industry dealings facilitates corruption and conceals incompetence. In 2010, for example, Putin pushed through laws halting publication of information about the government’s oil and gas businesses, making the records off limits to critics and the media.
In his book “Wheel of Fortune,” Georgetown University professor Thane Gustafson argues that “inherited wealth from Soviet oil supports a comfortable systems of rents that is all too tempting to linger. Yet precisely because oil is a wasting asset, any prolonged stasis is not sustainable.” Gustafson recommends continually modernizing the hydrocarbon industry in order to avoid economic decline. In the same vein, if profits are not reinvested in improving measures to diversify the overall economy, other sectors will inevitably become less competitive. __ http://america.aljazeera.com/opinions/2014/6/vladimir-putin-russiachinanaturalgasoilcurseeconomy.html
Russia is dependent upon western energy companies such as BP and Exxon, to modernise Russia’s decrepit Soviet-era oil & gas infrastructure. But since it is certain that Putin will sooner or later seize back all infrastructure, invested assets, and foreign ownership from BP and Exxon, it is not clear how far the charade can be played out.
BP and Exxon are merely searching for profits where energy can still be tapped — having been pushed away from the US and other western countries by energy-phobic policies being instituted by Obama and other ideologues. Nonetheless, they will discover that there is a painful price for partnering with a power-mad neo-imperialist.
Putin has been pushing the development of new generations of intercontinental ballistic missiles, and has been modernising aspects of Russia’s conventional military. Whether this brave new investment in aggressive power is meant for intimidation — or for actual use in warfare — remains to be seen.
But Putin is painting himself into a corner by isolating Russia from most of the world — and by making his strongest alliances with other nations that maintain a hostile stance toward outside nations.
As long as western leaders remain weak — such as energy delusionists Obama, Hollande, and Merkel — Putin is reasonably safe in pushing his one-trick-pony weight around. Problems will arise if significant numbers of western governments break out of their PC propaganda shells, and begin focusing on their own best interests. If such a thing were ever to happen, Putin wouldn’t be the only precarious dictator to find himself in a pickle.
The curse of oil afflicts those who don’t heed the lessons of others