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Russia has two allies: oil and gas

Carbon economy

The natural resources also play a key role in the re-establishment of Russia as a global player with influence over its near neighbours, are all overwhelmingly dependent on its fossil-fuel resources. As has been very nicely put by Helm, Russia now has largely a carbon economy, and at the narrow political level, the success of Vladimir Putin exactly corresponds with the recovery of oil prices from 1999. By the year 1999 Russia found itself in a state of chaos. The country was run by an alcoholic and ill president, manipulated by a small group of oligarchs and family members, who in turn had accumulated considerable wealth.

According to Helm, by the end of the decade, some twenty-five men together were probably worth more than the entire state, and held almost all the main strategic assets—assets which had been acquired in the anarchy after the Soviet Union collapsed. The main objective was to restore Russian economic and military dominance as well as Russian prestige in the world generally. Particularly this could be applied to Russia’s near neighbours, former states of the Soviet Union. Putin has said that the collapse of the Soviet Union was the ‘greatest disaster’ in recent history, and there is no reason to doubt his sincerity on this assertion.
The fact that rouble remained cheap and energy prices increased also led to Russia’s economic improvement. With Putin’s rise to power the energy policy was based on stronger state control rather than that of the oligarchs. One of Putin’s tasks was to limit the power and influence of the previously emerged oligarchs. The oligarchs have accumulated economic and political leverage during Yeltsin’s rule. In the eyes of Putin, the new power of Russia was supposed to be built not on military domination as it was during the Soviet Union. Energy resources were supposed to be the new guarantor of social and economic stability in the country and its global position.

When natural resources became the main source of economy earning negative affects were felt by the other sectors of industry and economy. Sectors like manufacturing and financial sector suffered, some reforms were overlooked. According to the analysts, Russia experienced the so-called Dutch disease, when natural resource raise the value of the national currency and decrease the competitiveness of the manufacturing sector. Showing classical Dutch disease symptoms, Russia was flooded with profits from foreign trade. For instance, in 2004, the country’s “positive balance was nearly equal to the total volume of federal budget expenditures.”

Some can compare Russia to European states like Norway. The difference is that Russia needs the middle man, or those transit countries that have been discussed in the first chapter. Unlike Russia, Norway produces its entire oil and gas on the sea shelf and exports it via pipelines or in the form of liquefied natural gas (LNG).35 If we take a look at the map of Russian gas or oil pipelines, we will clearly see that Russia cannot reach any of the Western European states without crossing the Eastern European transport states.

Main Russian oil export pipelines

Main Russian oil export pipelines


Main Russian gas export pipelines

Main Russian gas export pipelines

According to Robert L. Larssen, in most of the countries energy sector has some special characteristics. Primary energy resources are usually owned by the state and governments intend to keep considerable influence over the energy sector. The trend is that an increasing number of countries are becoming progressively more dependent on a small number of international suppliers of oil, gas and coal. An interesting thing when dealing with Russia is that most of the figures and numbers describing current Russian situation are classified. On 11 November 2003, Putin approved changes to the federal law ‘On State Secrets’ with effect that henceforth, the quantity and volume of oil reserves, and the methods, locations, and amounts of extraction, production, and consumption of Russia’s strategically valuable fossil fuels would be classified. The list of classified natural resources, which included oil, had already been spelled out in a Russian government decree of April 2002. The new amendment came into force three months after its official publication, that is, in February 2004.