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Energy Empire: Oil, Gas and Russia’s Revival

Fiona Hill

Russia is back on the global strategic and economic map. It has transformed itself from a defunct military superpower into a new energy superpower. Energy revenues no longer support a massive military-industrial complex as they did in the Soviet period. New oil wealth has been turned more into butter than guns. And after five years of economic growth, Russia has a new ‘soft power’ role that extends far beyond its energy resources. Instead of the Red Army, the penetrating forces of Russian power in Ukraine, the Caucasus, and Central Asia are now Russian natural gas and the giant gas monopoly, Gazprom, as well as Russian electricity and the huge energy company, UES—and Russian culture and consumer goods.

A range of new Russian products, a burgeoning popular culture spread through satellite TV, a growing film industry, rock music, Russian popular novels, the revival of the crowning achievements of the Russian artistic tradition, and new jobs in the private and service sectors, have made Russia an increasingly attractive state for the region around it. Millions of people from the Caucasus, Central Asia, and rest of Eurasia have flooded into Moscow, St. Petersburg and other Russian cities in search of work—and a better life. As a result, since 2000, Russia’s greatest contribution to the security and stability of its vulnerable southern tier has not been through its military presence on bases, its troop deployments, or security pacts and arms sales. Rather, it has been through absorbing the surplus labor of regional states, providing markets for their goods, and transferring funds in the form of remittances (rather than foreign aid). Migration to Russia has become Eurasia’s safety valve.

Russia’s economic growth and government budget revenues have been tied to high world oil prices and increased oil production since 1999. Energy now underpins the Russian economy and domestic stability, and boosts Russia’s international status. But according to most forecasts, in spite of enhanced recovery methods and new technologies introduced, Russian oil production will reach its peak around 2010, plateau, and then begin to taper off—if no new fields are developed. New fields and new reserves will be hard to recover as they are in colder, more remote regions with poorly developed infrastructure. Although Russia’s energy resources are not likely to “run out” anytime soon, without a major redirection of industry effort toward exploration, new field development, and the construction of new energy transportation infrastructure, Russia will see a decline in production.

Strengthening Russia’s energy sector for the future is now a critical issue not just for Russia, but for the much broader region of Eurasia, as well as for the primary consumers of Russian energy in Europe, Asia, and increasingly in the United States. And any sudden decline in production and economic slow-down will jeopardize Russia’s efforts to take advantage of its new soft power potential and affect regional stability.

Reproduced by permission of the Foreign Policy Centre (September 2004).

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