Putin's Giant Chess Game: 'Petrostate'
Books | Review of: Petrostate: Putin, Power, and the New Russia
By MARTHA MERCER
June 18, 2008
Over the weekend, at a meeting in Osaka, finance ministers from the
Group of Eight industrialized nations warned that high commodities
prices are a threat to the world economy. With the price of oil
passing $130 a barrel, the American Treasury secretary, Henry Paulson,
singled out oil-rich countries for not investing enough in production.
Click to enlarge image >
DMITRY LOVETSKY / 2008 AFP
MAN IN CHARGE Prime Minister Putin in May.
As news outlets pointed out, most of the G-8 countries have little
control over production. One, however, does, and it has leveraged that
control, and its enormous reserves, to regain status as a world power.
Russia's re-emergence as a "Petrostate" is the subject of Marshall
Goldman's new book of the same name (Oxford University Press, 244
pages, $27.95). An emeritus professor of economics at Wellesley
College and senior scholar at the Davis Center for Russian and
Eurasian Studies at Harvard University, Mr. Goldman has spent decades
delving into Russian and Soviet economics, and his latest in a dozen
books offers critical insight into the country's energy sector.
After the tsarist reconquest of what is now Azerbaijan and the
Caucuses in the mid-19th century, Russia began a cycle that has
repeated itself in various forms to the present day. Foreign concerns,
beginning with the Swedish Nobel family and Rockefeller's Standard
Oil, were allowed in to exploit the petroleum reserves and lend their
advanced technology, but after the Bolsheviks took over, the
foreigners were forced out.
In "Petrostate," Mr. Goldman takes a detailed look at oil production
in the Soviet era, and especially the political leverage that
owner****p of some of the world's largest petroleum and gas reserves
offered: the use of oil to gain influence in countries such as Cuba
and Pakistan, and the op****tunity presented by the 1973 oil embargo,
when Western Europe sought to reduce its dependence on uncertain
im****ts from the Middle East. The West throughout the Cold War had
held back its advanced drilling technology from the Soviet Union,
which oversaw colossal waste through its emphasis on quantity over
quality, but by the early 1980s, a natural gas pipeline linking the
U.S.S.R. with Western Europe was in the offing, over the objections of
President Reagan. It was completed in 1985.
The breakup of the Soviet Union and the division of its spoils
provides Mr. Goldman with his meatiest material. While the Ministry of
the Gas Industry was preserved whole as a hybrid state cor****ate
entity =97 in 1989, it became Gazprom, with the gas minister, Viktor
Chernomyrdin, installed as its CEO =97 the Ministry of Petroleum
privatized its oil fields.
The chaos that ensued, Mr. Goldman writes, was foreseeable. As many
Russians traded away the vouchers they received from President
Yeltsin's government for a bottle of vodka instead of using them to
purchase stock in the country's new companies, a small group of men
was preparing the ground for takeovers on a huge scale.
Through the tainted Loans for Shares program, for example, Mikhail
Khodorkovsky and his Bank Menatep were able, by way of a rigged
auction, to gain control of the huge oil fields of Yukos for a mere
$309 million, Mr. Goldman writes. The company, one of many controlled
by the country's new "oligarch" class, soon had a market share of $15
billion.
With production and the price of oil dropping as the 1990s progressed,
Russia again turned to foreign partners, allowing British Petroleum to
buy part of the Russian oil concern TNK, and permitting the signing of
production sharing agreements with Royal Dutch Shell and Total, among
others, to drill in the inhospitable fields off the island of
Sakhalin.
But after Russia hit rock bottom with the August 1998 default and
crash, commodities prices began to rise again, as did demand for oil
and gas in India and China. A year later, and five months after the
economy began its turnaround, Mr. Goldman writes, an unknown from St.
Petersburg named Vladimir Putin was appointed prime minister.
As president, and now again as prime minister, Mr. Putin has presided
over economic growth approaching 8% a year. He laid out his economic
strategy in a dissertation in 1997: Instead of allowing Russia's
oligarch-controlled cor****ations to focus exclusively on making a
profit, they should be used to advance the country's national
interests. Russia should welcome direct foreign investment, but Russia
alone should retain operating control.
Sibneft and Yukos, which was flirting with the idea of selling itself
to ExxonMobil and Chevron, were reined in, and the oligarchs who
controlled them were jailed or fled abroad. Production sharing
agreements in Sakhalin, which Mr. Putin had referred to as "a colonial
agreement," were adjusted in Russia's favor. Companies known as
"national champions," such as Gazprom and Rosneft, now check in
advance with Mr. Putin before selling assets to a foreign company.
In a welcome contrast to aggrieved Western press re****ts about Mr.
Putin's economic strategy and the subsequent fall of oligarchs such as
Mr. Khodorkovsky, Mr. Goldman takes an agnostic view on these
developments. "In all fairness," he writes, "the way the Russian
government reacts when foreign investors attempt to buy their energy
resources is not that atypical of how other countries react in a
similar situation. If anything, most members of OPEC, for example, are
even more protective."
He does have a stern warning for Western Europe, however. The region
has become dangerously dependent on Russia for natural gas, he writes.
With its spreading network of pipelines, Gazprom now has the power to
let Europe freeze if it so chooses.
Although the deputy chairman of the state-controlled gas giant,
Alexander Medvedev, proclaims that "what is good for Gazprom is good
for the world," Mr. Goldman points out that over the years, the Soviet
Union and now Russia have not hesitated to reduce or halt the flow of
gas. Squabbles with Ukraine, Belarus, and Georgia over the last few
years have made hollow Gazprom's pledges that it is a reliable energy
partner. While the Europeans and Americans have sought to break
Gazprom's pipeline monopoly by promoting the construction of a bypass
gas pipeline under the Caspian through Azerbaijan and Georgia to
Turkey, they are getting a late start to what Mr. Goldman calls Mr.
Putin's "giant chess game." Russia's power today, he writes, now
exceeds the military might it had during the Cold War. With no
mutually assured destruction, there is no mutually assured restraint,
giving Russia more economic clout than Europe or even the kingdom with
the world's largest proven oil reserves, Saudi Arabia.
The chess game continues.
mmercer@[EMAIL PROTECTED]
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