Download THE ENDS AND THE MEANS: Energy Mismanagement and the Fall

THE ENDS AND THE MEANS: Energy Mismanagement and the Fall of the Soviet
Union
Casey Petroff
Instructor: Professor Anton Fedyashin
Course: HIST-225 Russia and the Origins of Continental Eurasia
Spring 2010
The Soviet Union, spanning two continents and millions of square miles, contained
some of the vastest oil and natural gas reserves in the world, yet it spent decades of its
turbulent existence facing one wave of crisis and shortages after another. How was such
turmoil possible given its huge wealth of natural resources? The answer lies in the
fundamental structure of its command economy. Time and time again, Soviet planners
fell prey to the temptation to sacrifice real economic growth through long-term
investment in their energy sector for short-term gains in order to patch recurring
economic problems. This allowed falling oil prices to cripple the Soviet economy,
eventually leading to its collapse.
I. Geography and Resources of Russia and Eurasia
To fully understand the impact of raw materials on the Soviet and Russian political
economies, it is essential to first understand the exact nature of those resources - their
composition, scale, and location. Unfortunately, such information is hard to come by
because of the secretive nature of the Soviet government - and, for that matter, that of its
Russian successor. Yet even when examining a state that is traditionally more open about
the details of its resource wealth, it is still difficult to determine exact figures. There are
several reasons for this - firstly, there is often an inherent bias on the part of whatever
party is doing the measuring. Governments and resource extraction firms are inclined to
inflate their own figures in order to bolster national reputations and corporate equity
values. (On the other hand, companies and countries evaluating their competitors have a
logical incentive to underestimate.) Secondly, there is a multitude of different methods to
measure resource reserves that yield divergent conclusions. For instance, data on total oil
reserves within a region often varies vastly from data on total recoverable reserves within
that same region. Furthermore, the definition of what constitutes “recoverable reserves”
can itself be arbitrary and differs by region and by firm due to factors like technology,
available capital, and prices. In essence, the profitability of given oil deposit varies
depending on the resources, capabilities, skills, specialties, and management of the
company developing that resource. All too often, recoverable reserve estimates lack exact
definitions of what constitutes recoverability. Thus, in many cases, the amount of a given
resource in a region is truly unknowable and can only be estimated.1
One would do well to keep these limitations in mind when examining various
figures related to the Russian energy industry. Total oil reserves are almost impossible to
pin down. In fact, the Russian government regards its exact estimate as a state secret but
has referred to “prognosed reserves,” of 322 billion barrels, an improbably sizable
amount that is larger than commonly accepted figures for Saudi Arabia by over 50 billion
barrels and which counts reserves currently in production, recoverable reserves not
currently in production, partially recoverable reserves, and reserves that are only
presumed to exist.2 Conversely, the energy firm BP plc estimates total Russian reserves
to be 72 billion barrels, a figure that counts only proven reserves, while the United States
Energy Information Administration (EIA) puts the number at 60 billion barrels.3 To put
these numbers in perspective, a reasonable estimate for Saudi Arabia’s total reserves is
about 264 billion barrels, while total daily consumption by the United States is 19.5
million barrels per day.4
There is somewhat greater a consensus on natural gas reserves. Official
governmental figures indicate reserves of 48 trillion cubic meters in Russia, a number
that is backed up by the EIA, which cites “industry reporting.”5 If true, this is enough
natural gas to last until the end of the century and represents 26 percent of the world’s
current gas reserves according to EIA estimates. (The Brookings Institute, a prominent
American think tank, lists the latter figure as 32 percent, a number probably attributable
to a different definition of world reserves rather than a radically larger estimate of
Russian gas holdings.6) Meanwhile, Jean Laherrère, a well-known consultant in the oil
industry and proponent of oil depletion and peak oil awareness, evaluates Russia’s
reserves at 43 trillion cubic meters. Given Laherrère’s involvement with the Oil
Depletion Analysis Centre, one of the loudest proclaimers of a coming peak in fossil
fuels, this number is surprisingly close to the official estimate and indicates a fair
consensus across the spectrum of analysts, at least compared to oil estimates, given
current data (which, of course, is subject to change based on new discoveries, shifts in
technologies, and fluctuations supply and demand).7 In any case, Russia’s natural gas
holdings are the largest in the world by far. By comparison, Iran has the second-largest
gas reserves at 29 trillion cubic meters.
Oil and natural gas are both fossil fuels and have a tendency to be found together in
the same geographic area. In Russia, they can be found concentrated in several regions
(see image 1).8 The Caucasus region, encompassing southern Russia, Armenia,
Azerbaijan, and Georgia, was the first to be developed for oil by the Soviet Union in the
1950s. Further development was fostered in West Siberia, where the first major gas field,
the Urengoy gas field, was discovered in the 1960s, sparking Russia’s natural gas
exports.9 The Volga-Urals region in the southern Ural Mountains followed, opening to
extraction in the 1960s. Other gas- and oil-producing areas in the former Soviet Union
include the Timan-Pechora region directly south of the Barents Sea, the Precaspian
region north of the Caspian Sea (lying chiefly in Kazakhstan), and Central Asia, covering
portions of Kazakhstan, Uzbekistan, Tajikistan, and Kyrgyzstan.10 Prospective areas of
extraction and those undergoing recent development include further spots near the
Caspian Sea, South Turgay on the Russian-Kazakhstani border, the Barents Sea itself, the
Kara Sea, Russia’s Kaliningrad enclave and offshore in the Baltic Sea, East Siberia and
the nearby Lena-Tunguska region, far north in the East Siberia Sea, and Sakhalin, a large
island in the North Pacific near the northern edge of Japan.11
II. The Foundations of Energy in the Soviet Union: Imperial Russia through
Khrushchev
The Russian oil industry has its roots in 1873, the year when American drilling
technology was exported to Baku (the capital of Azerbaijan, then part of the Russian
Empire), where oil had long seeped from the ground to be collected as low-grade
kerosene. Within a decade, production increased twentyfold and accounted for half of the
world’s total by 1900.12 After the fall of the Russian Empire, the Soviet Union continued
to export oil. However, because planners failed to realize the wealth of resources within
Soviet borders, they continued to run their own domestic economy chiefly on coal, peat,
and wood.13 During World War II, the Soviet Union actually became a net importer of oil
when petroleum production was disrupted by German attacks. In fact, Hitler’s desire to
seize Soviet oil fields was one of the main aims of the Third Reich’s disastrous campaign
in southern Russia and the Caucasus.14 In the postwar USSR, 1941 levels of extraction
were not reached again until 1949, and the country continued to supply its energy needs
largely through imports until 1954, though not always in the friendliest of manners -
Polish Communist politician Edward Ochab would later recall the Soviet Union’s
pressure on Poland to increase coal exports to the USSR despite Poland itself undergoing
a coal shortage.15
It was, of course, in the postwar period that the seeds of the coming Cold War
between the USSR and the United States were sprouting. Throughout the war and
afterwards, the US funneled aid to the Soviet Union, then still its ally. Petroleum made up
a portion of this aid, as did “industrial machinery, agricultural equipment, and oil industry
technology” - the foundations of a recovering and industrializing economy.16 As divisions
deepened between the Soviet Union and the US, sentiment in Washington was divided
between those who saw an opportunity to sway the Soviet Union towards American
influence through continued aid and normalization of trade relations and those who saw
risk in supplying a potential enemy with goods that might have potential military uses or
that could, at the very least, become the building blocks of an unfriendly rival. By 1950,
as American troops in Korea fought Soviet-backed North Koreans, any plots to win over
the Soviets through oil and goods exports were ancient history. This process was
mirrored on the side of the Soviets, whose initial interest in US aid dissolved into
accusations of imperialistic motives.17
The end result was that the Soviet Union not only rejected aid for itself but also
prevented allies and satellites such as Poland and Czechoslovakia from accepting it in
order to maintain its sphere of influence. The United States, seeking to build its own
sphere in Western Europe, had to contend with the longstanding tradition of trade
between the Soviet Union and its associates and Western Europe, which had been “more
than 700 times the amount of comparable American trade” in the years leading up to the
war.18 Each sought to absorb weakened countries as allies, buffers, and client states. In
1949, responding to pro-Western cohesion under the Marshall Plan, Joseph Stalin, then
General Secretary of the Soviet Union, oversaw the creation of the Council for Mutual
Economic Assistance (referred to as COMECON) to further pull states into the Eastern
Bloc and to provide an alternative to those tempted by the fruits of solidarity with the
West. The founding members were the Soviet Union itself, Bulgaria, Czechoslovakia,
Hungary, Poland, and Romania.19 The Soviet Union’s energy policy towards the
COMECON states would become extremely important in the decades to come.
After the death of Stalin in 1953, the Soviet government began to pay more attention to
the energy sector. Capital investment in the energy sector rose sharply, from an average
annual rate of 5.55 billion rubles throughout the 1940s and early 1950s to 9.02 billion
rubles in the mid-1950s.20 Exploration and production were encouraged. The general
thaw spearheaded by Nikita Khrushchev after Stalin’s death prompted further economic
collaboration with the Soviet Union’s neighbors. COMECON policy was overhauled, and
one of the first improvements was the creation of a network of pipelines between the
Soviet Union and Eastern European states - a huge step forward, as fuel had previously
been shipped by truck and by railway, both highly inefficient methods of transport. The
new oil pipeline network consisted of a main line, called Druzhba (meaning
“friendship”), that originated within the USSR and then bifurcated into two main
branches, one running through Poland to East Germany and the other winding and
branching through Hungary and Czechoslovakia.21
While COMECON was a multilateral organization in name and in theory, in reality,
it existed to connect each member state to the Soviet Union. In terms of drawing the
Eastern Bloc together to ally economically with the USSR, COMECON was a success in 1953, seven years after its creation, “83 percent of the Soviet Union’s trade was within
its own bloc. Poland’s 70.4 percentage, high as it was, was the lowest COMECON
percentage.”22
The USSR’s newfound oil wealth, combined with its influence in the Eastern Bloc,
afforded it an opportunity to supply its clients with energy in exchange for cooperation.
The amount of oil that the Soviet Union shipped through the Druzhba pipeline to the
countries on the other ends was regularly renegotiated at trade meetings. The USSR was
therefore able to utilize fuel shipments as a bargaining chip in deliberations with the other
members of the Eastern Bloc.23 This behavior is an early example of a pattern - energy
dependence as political leverage - that continues in the former USSR and Eastern Bloc
today.
Meanwhile, Soviet embargos against the West were relaxed under Khrushchev as
officials began to consider exporting oil to Western Europe as a way to undermine the
unity of the Western alliance. By 1956, midway through the period of post-Stalin
intensified capital investment, the USSR began to sell oil to the West at a discount of
two-thirds of the price at which it charged fellow Communist countries, who were
obligated to buy from the Soviets. The discount gave Western countries an incentive to
buy from the Soviets by compensating for the risk of displeasing the United States. (This
reflected the USSR’s policy in the east, wherein it sold oil to Japan at a significant
discount relative to Communist China, which was the Soviet Union’s biggest customer
for oil until it was surpassed by Italy in 1960.) 24 By 1960, oil exports to the West were
four times those in 1956.
Political and ideological conflicts notwithstanding, Western Europe, particularly
Italy and West Germany, welcomed the new, cheap source of energy, to the chagrin on
the United States. It is unclear why the US allowed its rival to chip away at its suzerainty
in Western Europe in this manner, although a likely theory is that American officials
underestimated the Soviet ability to construct pipelines to actually deliver the promised
oil. Furthermore, it would be politically difficult to directly oppose any lessening of Cold
War tensions. In any case, by 1962, a combination of falling export levels, a price hike on
the part of the Soviet Union, difficulty obtaining steel for further pipeline projects, and
American pressure on its allies slowed the growth of trade between the Soviet Union and
its newfound customers, yet the thorn in the side of the US was not entirely eliminated,
and by the late 1960s, it was once more on the rise.25
III. Prosperity and Crisis: Energy under Brezhnev and Gorbachev
In the late 1960s and early 1970s, the future of the Soviet energy sector seemed
rosy. Oil production was again high due to the opening of new oil fields. The discovery
and exploitation of gas fields provided additional optimism. The upper echelons of Soviet
leadership, now under General Secretary Leonid Brezhnev and Premier Aleksei Kosygin,
devoted little attention to the energy sector at this time, simply because it seemed to be
functioning well enough to cause little concern. Indeed, their attention was
understandably (though, as it would turn out, erroneously) directed elsewhere. The boon
of Soviet energy reserves was their ability to bring cash into Soviet coffers, and a steady
source of income was what the USSR needed at this time, engaged as it was in a vast
array of ambitious projects such as the space race, a huge military and arms buildup, the
support of the Eastern Bloc and other allies, and the acquisition of Western technology
for domestic concerns.26 Additionally, grain imports were necessary to ameliorate the
effects of a disastrous grain harvest in 1971 and 1972.27 Fortuitously for the USSR, oil
prices that were already on the rise in the early 1970s skyrocketed in 1973 due to a
worldwide oil shock caused by the Yom Kippur War between Israel and Syria and Saudi
Arabia and the resulting embargo by the Organization of Petroleum Exporting Countries
(OPEC). The Soviets found themselves raking in the cash, with energy exports
accounting for 80 percent of currency earnings between 1973 and 1985. Not only did
they export to their European trading partners but also to the United States as part of the
Nixon- era détente between the two superpowers. At a 1972 summit, Nixon and
Brezhnev jointly declared that “the U.S.A. and U.S.S.R. regard commercial and
economic ties as an important and necessary element in the strengthening of their
bilateral relations and thus will actively promote such ties.”28 At the time of this
statement, the US was importing only $7.5 million of Soviet oil, but by early 1974, under
the strain of embargo, oil was flowing from the USSR to the US and bringing $200
million per year.29
However, cracks in the foundation of Soviet energy policy were already present
underneath the veneer of relative prosperity. These problems stemmed from the larger
nature of the Soviet command economy. The very definition of a command economy is
that production and allocation are directed from the top, and, as it so often happens, the
heights of Soviet power knew little about the realities of the oil and natural gas industry.
Several distinct habits of Soviet planners can be observed. Firstly, there existed a
tendency to devote attention and resources to staving off short-term economic
emergencies at the price of growing the economy in the long term. Secondly, there
prevailed a pattern of focusing on output, not on profit, leading to an overall reduction in
efficiency.30
A major problem was unrealistic goal-setting. Since the late 1920s, the USSR’s
economic development was conducted according to a structure known as the “Five-Year
Plans for the National Economy of the Soviet Union,” or simply five-year plans. Stalin
launched the first of these in 1928 in an effort to industrialize the Soviet Union and bring
it up to par with other industrialized nations. It was a success in terms of increasing
industrial capacity, although it did so at the expense of Soviet agriculture, which would
not recover for decades afterward.31 By the 1971, the USSR was on its Ninth Five-Year
Plan.32
Soviet planners, enthused by the oil reserves discovered in the 1960s, disregarded
the advice of geologists familiar with oil production capacity and set targets significantly
higher than they were advised. For example, in the Tiumen region of West Siberia,
government geologists and oilmen recommended extracting 70-75 million tons in for the
year of 1975.33 (One ton of oil is approximately equal to 7.2 barrels.) 34 Planners in
charge of the Ninth Plan in 1970-1971 demanded 120-125 million tons. The final output,
to the pleasure of the government, turned out to be 141.5 million tons. The planners
pulled off this feat again in 1975-1976 while planning for the year of 1980, once more
setting targets 50 million tons above the geologists’ recommended amount. This time, the
actual output fell squarely within the amount demanded by the Tenth Plan - still
impressively more than the advised extraction limit, but, as Thane Gustafson, an expert
on Soviet energy policy, put it, one could begin to observe “a growing disparity between
the ends and the means.”35
Adding to the disparity of viewpoints was further disagreement at the pinnacle of
Soviet leadership. In an October 1974 speech, Brezhnev gave a speech in which he
stated, “The natural resources of our country allow us to look to the future without
danger. To make a long story short, our country is a country with uncounted riches and
inexhaustible opportunities.” Three weeks later, Kosygin spoke publicly about the need
for conservation, saying, “Our resources are great. But they are not inexhaustible...it is
our task to use them intelligently, carefully, and in the most rational way possible so that
each kilogram of fuel...[serves] the socialist economy as effectively as the most advanced
technology permits.”36 Meanwhile, a certain A. A. Trofimuk, who was at the time deputy
head of the Siberian Division of the Soviet Academy of Sciences, advocated exploiting
oil and gas as fast as possible because he believed new energy substitutes were on the
verge of being discovered and that “the Soviet Union had better use its reserves...before
they become valueless.”37
Besides setting outrageously high targets for oil extraction, Soviet planners of this
era made another fatal mistake. Adhering to the above-mentioned pattern of consistently
prioritizing short-term security over long-term growth, they emphasized extraction and
production over exploration, and what exploration did occur was paradoxically focused
not on the newly opened West Siberia but on older, traditional oil-producing regions such
as the Caucasus, which were closer to points of use than West Siberia. Exploration in
West Siberia was also neglected because the reserves-to-production ratio was so high that
further exploration was deemed unnecessary at the time.38
In 1976-1977, several events came to a head. First of all, coal production began to
drop, as did oil output from older oil fields. Second, geologists in West Siberia “failed to
meet their assigned targets for additions to proven and probable oil reserves,” even as
planners working in these two years set excessively ambitious production targets for
future extraction.39 Other signs of crisis included a drop in “the number of new fields
identified, the flow rates of new wells, and...the overall growth rate of Siberian oil
output.”40 Clearly, something had to be done. And yet, what Brezhnev’s government
chose to do was to adhere to precisely the strategy that had caused the problem in the first
place. Investment in oil extraction was increased and manpower was diverted to the oil
fields of West Siberia, but once again, real growth was sacrificed to stave of an
emergency, and emphasis was placed on production to meet the quotas, not on long-term
solutions.41
The culmination of this first oil crisis took place against a backdrop of corruption and
degeneration as an aging Brezhnev became increasingly obsolete. Despite high oil prices
throughout the 1970s into the early 1980s, the Soviet Union maintained a serious deficit
due to yet more failed harvests and was burdened, as always, by a huge military budget
and a noncompetitive manufacturing sector, as well as by a series of misadventures in
policy abroad, most notably the Soviets’ invasion of Afghanistan. By 1980s, the country
was experiencing shortages of consumer goods and inflation at home.42 Oil production
had leveled off, accompanied by a drop in oil prices (see image 2). Between 1981 and
1985, the Soviets were forced to reduce deliveries to their non-COMECON customers; in
1985, for the first time in the history of the USSR, oil production began to fall.43 The oil
industry was still plagued by the problem that had caused the first oil crisis in the late
1970s: new fields had not been developed fast enough to meet production goals, and so
there was too great a dependence on older, existing fields. Additionally, there was a great
underutilization of existing resources; for example, one- sixth of all oil wells in the
Tiumen region were idle due to poor drilling practices during the panicked days of the
first crisis that left them only partially usable.44 Outdated, inefficient technology was also
a contributing factor. For instance, Soviet oil production relied heavily on a technique
called waterflooding, wherein water is injected “into a field to push oil toward the wells
and up to the surface.”45 Despite Soviet claims that waterflooding was a technique that
produced high total recovery, there is evidence of its tendency to cause corrosion of
equipment and overall long-term inefficiency. This practice seriously damaged the
Samotlor oil field, one of Russia’s largest, in the late 1970s and 1980s. Once more, the
Soviets were “systematically [overproducing] their fields to get quick returns.”46 And
once more, the Soviets pulled themselves out of the slump through their traditional
approach - “massive new injections of capital and manpower” without significant
innovation to solve the underlying problem.47
While the oil industry was crumbling at the edges, however, a bright spot appeared
on the horizon: natural gas. The Soviets had been extracting and, to some degree,
exporting natural gas since the 1960s, however, it was never seriously considered as a
major source of fuel until the 1980s. It was regarded as too expensive to produce and ship
and was generally reserved for premium use; as worries over the 1976-1977 oil crisis
began to grow, Kosygin had spoken of moving from oil to coal and nuclear power and of
utilizing precious natural gas resources as a bridge to temporarily ease the transition. As
usual, the planners were reluctant to undertake a long-term project to grow the economy.
Reluctance to utilize natural gas reserves for any purpose were great enough that the
USSR actually imported it from sources like Iran and Afghanistan.48 However, the oil
crises finally convinced the Soviets that natural gas investment was necessary to provide
a stable, viable source of fuel and serious investment was implemented occurred under
leadership of Mikhail Gorbachev. The Soviets now had to pay the price of their
procrastination and undertake a massive project to bring natural gas production up to
speed.
IV. The Final Years of the Soviet Union
However, the improvements in natural gas infrastructure came too late to mitigate
the larger problems of the Soviet Union at this point in history. By the time serious
investment in natural gas was underway, the USSR had firmly imbedded itself into the
world market as an exporter of fuel and an importer of essentials such as grain. There
were a variety of options open to the government in response to falling oil prices that
included raising the price of retail goods, reducing manufacturing in order to export raw
materials instead of using them in domestic production, reducing the amount of energy
funneled to its COMECON allies, or curtailing purchases from the West. However, the
structure of the Soviet command economy and its corresponding “social contract” with its
people also dictated that the government maintain a status quo. To impose rationing
would be difficult to implement, politically and practically speaking. To reduce military
spending would also be politically impossible, as too many jobs were tied to
manufacturing to skim from that sector. And so the Soviets chose the to cut exports to
COMECON countries, thus losing a major factor in its influence over them.49 The outer
fringes of the empire had begun to crumble.
In August of 1989, an official in the Ministry of Oil and Natural Gas wrote a letter
to the government stating that “in connection with the extremely difficult situation, the
Ministry of the Oil and Gas Industry deems it necessary to reexamine the state order on
oil production to the above-mentioned associations and lower it to an intense but realistic
goal. Based on this, we ask that the state order for oil in 1989 as a whole be lowered by
15.5 million tons.”50 This letter exemplified the vicious cycle that developed as the
government, heavily in debt and unable to get further credit from lenders, was unable to
finance further oil exploration and development while an exhausted oil industry could not
produce enough oil to fill the government’s coffers.51 Efficiency was at an all-time low;
in 1975 it took 16 wells to produce a million tons of oil, while in 1990, it took 165.52
Production ground to a halt as miners and oil field workers went on strike, first for higher
wages and then for the resignation of targeted political entities.53
Desperate to alleviate the strain on the economy, Gorbachev finally agreed to arms
limitations in 1988, thereby capturing the twin benefits of reduced military spending and
a concession to the West in exchange for loans from Western countries, the International
Monetary Fund, and the World Bank. In the winter of 1990-1991, another strategy that
was only two years earlier considered unthinkable was implemented: retail prices were
hiked and tariffs were introduced, and by the end of 1991, hyperinflation had set in.54
Finally, on December 25, 1991, Mikhail Gorbachev officially resigned, leaving a host of
unsolved political, social, and economic problems in his wake. In truth, the Union of
Soviet Socialist Republics had been doomed almost from the beginning, if not by sheer
virtue of being a communist command economy in a capitalist world, then certainly by its
tradition of sacrificing real economic growth for short-term solutions to structural
problems that was ingrained under Stalin. In the end, all the best-laid plans of the
powerful men at the top of a superpower’s economy were no match for the natural ebb
and flow of external events and market forces outside of their control. After decades of
struggling against the tide of economic reality, the Soviet Union passed into history,
destroyed in a large part by its greatest asset.
V. Final Words: A Look to the Future
On April 21, 2010, Russian president Dmitri Medvedev gave a speech in which he
stated that “Russia will give ‘preferential treatment’ to countries that are partners of
Russia in practice, not just in rhetoric.”55 Medvedev had just met with the new Ukrainian
president Viktor Yanukovich, a noted friend of Moscow, to discuss a natural gas
agreement and announced that as reward for Ukraine’s good relations with its larger
neighbor, Russia would be cutting the price of natural gas by nearly 30 percent.56 Clearly,
the heirs of the Soviet Union still maintain the old habit of utilizing natural resources as
political leverage to draw its neighbors into a political sphere of influence. The question
at hand is whether the Russian energy sector has truly become a more stable entity since
the collapse of the Soviet Union and the formation of the Russian Federation.
In the nearly two decades since its formation from the ashes of the Soviet Union,
Russia has established itself as one of the world’s two true energy superpowers. Energy
exports count for half of its GDP and 70 percent of its export revenues.57 The energy
industry is dictated by a series of state-owned concerns including LUKoil, an oil firm,
Rosneft, which produces both oil and natural gas, and. most famously, the natural gas
giant Gazprom, a massive, enormously powerful, yet ultimately inefficient entity. The
energy sector is run by a combination of bureaucrats and oligarchs, entrepreneurs who
rose to power during the period of market liberalization after the fall of the Soviet Union
but who now exist at the whim of the Kremlin.58 Oil and natural gas have lately been a
factor in a number of foreign policy moves; for example, the 2008 conflict between
Russia and Georgia, Russia targeted the BTC oil pipeline, which was built in part by
Americans and Europeans in an effort to bypass Russia in transporting oil from the
Caspian Sea to ports in Turkey, thus giving Russia further control over energy production
and transportation in the region.59
Lately, Medvedev has been a modernization streak, seeking to move Russia away
from energy in the face of declining output; in 2009, he published an article in which he
asked, rhetorically, “Should we drag a primitive economy based on raw materials and
endemic corruption into the future?”60 However, his suggestions for modernization are,
as they were in the Soviet Union, top-down plans that fail to address the underlying
problems of the Russian economy and social structure - a declining population, a lack of
property rights, a vastly corrupt bureaucracy, and an outdated infrastructure, to name a
few. Once again, underlying structural problems are being ignored in favor of superficial,
top-heavy attempts at short-term reform - an approach to governance that has already
been proven to be spectacularly unsuccessful.
1
A.J. Bogart and M. F. Ebneyousef, "The Meaning of Reserves in Context of GI," (presented at SPE
Hydrocarbon Economics and Evaluation, Dallas, March 29, 1993). Greg Clinch and Joseph A. Magliolo,
"Market Perceptions of Reserve Disclosures under SFAS No. 69," Accounting Review 67.4 (1992): 84361.
2
Erik Janssen, "Can Russian oil growth be sustained?" Clingendael International Energy Programme
(2005): 1-11.
3
Energy Information Administration, Russian Oil and Natural Gas at a Glance, US
Department of Energy.
4
U.S. Energy Information Administration, Saudi Arabia Energy Data, Statistics, and Analysis - Oil, Gas,
Electricity, and Coal, U.S. Department of Energy. C.I.A. World Factbook, "Country Comparison: Oil –
consumption," U.S. Central Intelligence Agency.
5
Christian Wüst, "Anstich in Paradies," Der Spiegel, December 17, 2007. Web. Russian Oil and Natural
Gas at a Glance.
6
Fiona Hill, "Russia: The 21st Century's Energy Superpower?," The Brookings Institution (2002).
7
Wüst.
8
Russian Oil and Natural Gas at a Glance
9
Ibid.
10
Ibid.
11
Ibid.
12
Daniel J. McCarthy, Sheila M. Puffer, and Stanislav V. Shekshnia. Corporate Governance in Russia,
Vol. 1, (Cheltenham, United Kingdom: Edward Elgar Publishing Limited, 2004), 329.
13
Arthur J. Klinghoffer, "Sino-Soviet Relations and the Politics of Oil," Asian Survey 16.6 (1976): 540-52.
Thane Gustafson. Crisis amid Plenty: The Politics of Soviet Energy under Brezhnev and Gorbachev,
(Princeton, NJ: Princeton University Press, 1989).
14
Joel Hayward, "Too Little, Too Late: An Analysis of Hitler's Failure in August 1942 to Damage Soviet
Oil Production," Journal of Military History 64.3 (2000): 769-94.
15
Klinghoffer, 540-52.
William M. Reisinger, Energy and the Soviet Bloc: Alliance Politics after Stalin, (Ithaca, NY: Cornell
University Press, 1992), 21.
16
Bruce W. Jentleson, Pipeline Politics: The Complex Political Economy of East-West Energy Trade,
(Ithaca, NY: Cornell University, 1986), 53.
17
Ibid., 63-64.
18
Ibid., 63.
19
COMECON was established as the Soviet answer to the Organization for European Economic
Cooperation, established in 1948 to help administer the Marshall Plan. (Library of Congress Federal
Research Division, Appendix B -- Germany (East) The Council for Mutual Economic Assistance, U.S.
Library of Congress.)
20
21
Reisinger, 39-45.
Furthermore, a regional power grid allowing for the transfer of electricity directly from the Soviet Union
to its client states and plans for collaborating on nuclear energy research were instituted. (Ibid.)
22
Jentleson, 70.
23
Reisinger, 40-41, 70-71.
24
Klinghoffer, 541
Jentleson, 90.
25
Jentleson, 85-131.
26
Gustafson, 23
Stephen Kotkin, Armageddon Averted: The Soviet Collapse, 1970-2000. 2nd ed. (New York: Oxford
University Press, 2008), 16.
27
Jentleson, 136.
28
Ibid., 139.
29
Ibid., 136.
30
Gustafson 12.
31
Robert W. Davies, Mark Harrison, and S G. Wheatcroft. The Economic Transformation of the Soviet
Union, 1913-1945, (Cambridge, Great Britain: Cambridge University Press, 1994).
32
Gustafson, xxiii.
33
Ibid., 80.
34
Energy Policy and Planning Office, "Oil Industry Conversions," Thai Ministry of Energy.
35
Gustafson, 80.
36
Robert G. Jensen, Theodore Shabad, and Arthur W. Wright, Soviet Natural Resources in the World
Economy, (Chicago: University of Chicago Press, 1983), 635.
37
Ibid., 636.
38
Gustafson, 76-79.
39
Ibid., 27.
40
Ibid.
41
Ibid., 99.
42
Yegor Gaidar, Collapse of an Empire: Lessons for Modern Russia, (Washington, DC: The Brookings
Institution, 2007), 103, 109.
43
Ibid., 105-107.
44
Gustafson, 104.
45
Ibid., 114-155.
46
Ibid.
47
By this time, Mikhail Gorbachev, now General Secretary, made attempts to “correct longstanding
imbalances” in oil policy, criticizing inefficient production logistics and overseeing a reallocation of
capital. At its heart, however, his solution was much the same as previous ones. (Ibid., 119.)
48
J. B. Amstutz, Afghanistan: The First Five Years of Soviet Occupation, (Washington, DC: National
Defense University Press, 1986), 259.
49
Gaidar, 125-128
50
Ibid., 140.
51
Ibid., 153.
52
Ibid., 162.
53
John D. Dunlop, The Rise of Russia and the Fall of the Soviet Empire, 2nd ed. (Princeton, N.J.: Princeton
University Press, 1995.)
54
Igor Filatochev and Roy Bradshaw, "The Soviet Hyperinflation: Its Origins and Impact throughout the
Former Republics," Soviet Studies 44.5 (1992): 739-759.
55
Strategic Forecasting, Inc. "Russia: Formalizing Energy Leverage." STRATFOR, April 23, 2010.
56
Ibid.
57
Harley Balzar, "The Putin Thesis and Russian Energy Policy." Post-Soviet Affairs 21.3 (2005): 210-25.
58
"Another Great Leap Forward?" The Economist, March 2010. Web.
59
Rachel Martin, "Russia's Georgia Invasion May Be About Oil," ABC News. August 16, 2008. Web.
60
"Another Great Leap Forward?"
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Appendix
Image 1: Producing and Prospective Oil and Natural Gas Regions in the Former Soviet
Union.
Source: Russian Oil and Natural Gas at a Glance.