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1/14/2008 (Balkanalysis.com)
By Mehmet Efe Biresselioglu*
Russia has reappeared on the global strategic and economic map in recent years due to the combination of international concerns about energy security, instability in the Middle East, and dramatically rising oil prices. Russia has benefited tremendously from the changing global situation since 1999, being one of the world’s most energy-rich countries. The Russian economy grew by more than 6 percent last year with the help of energy exports.
Russia has used this opportunity to regain the dominant position on the global energy market that it had enjoyed in the 1970’s and 1980’s, when the USSR was the leading oil producer in the world. In the aftermath of the recent shift in the global situation, Russia is transforming itself into a new ‘energy superpower’ with the help of high energy prices and increased global demand of energy. Energy will remain the base of Russia’s power for the foreseeable future. It will underpin the Russian economy and domestic stability, and enhance Russia’s political and economic position in Eurasia, by making it a major player in Asia as well as in Europe, and by increasing its significance to the United States.
Russia has mostly been a producer and a supplier of raw materials which account for nearly 80 percent of its exports. Many analysts insist that the prevalence of raw materials amongst a nation’s exports can be used as a lever for exercising its global influence. Since the demand for oil and natural gas in the developed nations is expected to grow, as Russia has the world’s biggest oil and natural gas reserves among non-OPEC member countries, Russia has a chance to use its energy power to become a stable supplier of oil and natural gas to the Western nations and China.
However, there are complications in the country’s resource-based economy. The root of these problems lies in ownership patterns rather then resource abundance per se, and present potential challenges to the state. The main one that Russia may face is the external shock caused by falling energy prices. Another challenge is the possibility of Russia becoming a victim of ‘Dutch Disease’ due to negative consequences of energy income.
Energy is increasingly being used as a tool of Russian foreign policy. Russia seeks to ensure control over oil and gas pipeline routes both across her territory and elsewhere, in order to gain leverage in relationships with both potential allies and adversaries. The Russian state is also increasing its control over its own energy resources. What is happening there today can be understood as a re-allocation of natural resources by the state. The privatizations of the 1990’s were characterized by oligarchic seizure of formerly state-owned entities. Under Putin, the state has taken back what it used to have in the Soviet period. State control over the natural resources and economy takes the form of controlling the assets as a tool for Russia’s foreign policy implementation. As a recent example, Kremlin used natural gas as a bargaining chip in winter 2006, this time with respect to neighboring pro-Western countries, including Ukraine and Georgia.
The Russian energy sector has come to represent the Russian state interests globally. Russia’s energy companies are expanding internationally with the assistance of the government. President Putin, then the director of the FSB, wrote an article for the Mining Institute’s journal entitled, “Mineral Natural Resources in the Development Strategy for the Russian Economy.� In that article, the future president stated that hydrocarbons were crucial to Russia’s development and the restoration of its former power. Putin discussed that the most effective way to exploit this resource was through state regulation of the fuel sector, and by creating large and vertically integrated companies that would work in partnership with the state. With the Putin administration, Russia has been following the strategy of using energy as a key policy in her foreign policy.
Gazprom and oil companies like LUKoil have become particularly prominent in sensitive energy ventures and regions of strategic importance to the Russian state since 1999, including the Middle East, Central Asia, neighboring states of Eastern Europe, the whole of the EU and the United States. At the G-8 meeting of 2006, Russian Finance Minister Aleksei Kudrin pointed out that Russia’s role as an energy supplier and therefore an influential power is not likely to fade soon. The government of Russia believes that Russia will remain a major player in energy, especially in global natural gas markets.
The main challenge for state ownership of the natural resources is the issue of ‘good management.’ As political economists argued, production and reserve levels have continued to grow only in well-managed resource economies. Many other resource-based economies have performed poorly before, not because they have over-emphasized minerals, but because they have failed to develop their mineral potential through appropriate policies.
Russian energy policy, therefore, is currently at an important watershed. On the one hand, Moscow is emerging as an alternative non-OPEC supplier of energy. On the other hand, however, there is notable concern that the Russian energy strategy is coming closer to the ‘energy capitalism model’, whereby foreign energy companies are welcome to invest, but only on the government’s terms and in partnership with a state-controlled national energy company.
* Mehmet Efe Biresselioglu is a PhD candidate at IMT Lucca Institute for Advanced Studies, Italy and a Visiting Research Fellow at NUPI, Norway. He has a degree in M.A in European Studies from Jean Monnet Center of Excellence at University of Turku, Finland. He specialized in Energy Politics, Geopolitics, Security Mechanisms, and Foreign Policies in the geographic focus of Turkey, EU, Central Eurasia, Caucasus, Caspian Sea Region and US. He is currently working on his dissertation about ‘European Energy Security: Turkey’s Role as a Major Conduit for the Oil and Natural Gas of Central Asian and Caspian Sea Regions’. Contact the author by email at: efe.biresselioglu@imtlucca.it
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