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Oil, Carrots, and Sticks: Russia's Energy Resources as a Foreign Policy Tool


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This paper will explore the growth of Russia’s energy leverage in recent years, a source of power which Russia has used both to reward its friends and punish its enemies. It will briefly trace the origins of this power in the integrated energy networks of the former USSR and Warsaw Pact. It will then examine recent cases of the use of ‘oil power.’ Both positive and negative linkage will be considered. Some states-such as Armenia, Belarus and the Ukraine under President Kuchma-have been favored with heavily subsidized energy. Others-such as Georgia, Moldova, the Baltic States and the Ukraine under President Yushchenko-have been targeted by supply disruptions and punitive price increases. Russia’s new ‘petro-power’ is of great importance today, and not just for its immediate neighbors: like other ‘petro-states,’ Russia is likely to gain ever more power as oil and gas become scarcer in the future.
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Oil, carrots, and sticks: Russias energy resources as a foreign policy tool
Randall Newnham
Penn State University, United States
article info
Article history:
Received 11 September 2010
Accepted 14 February 2011
This paper will explore the growth of Russias energy leverage in recent years, a source of
power which Russia has used both to reward its friends and punish its enemies. It will briey
trace the origins of this power in the integrated energy networks of the former USSR and
Warsaw Pact. It will then examine recent cases of the use of oil power. Both positive and
negative linkage will be considered. Some states-such as Armenia, Belarus and the Ukraine
under President Kuchma-have been favored with heavily subsidized energy. Others-such as
Georgia, Moldova, the Baltic States and the Ukraine under President Yushchenko-have been
targeted by supply disruptions and punitive price increases. Russiasnewpetro-power is of
great importance today, and not just for its immediate neighbors: like other petro-states,
Russia is likely to gain ever more power as oil and gas become scarcer in the future.
Copyright Ó 2011, Asia-Pacic Research Center, Hanyang University. Produced and
distributed by Elsevier Limited. All rights reserved.
1. Introduction and theory
In the past decade, Russia has increasingly moved back
onto the world stage as an important actor. After a notice-
able decline under Gorbachev and Yeltsin, the Putin era saw
a resurgence of Russian power. A key component of this
power is Russias ability to use its oil and gas reserves as
foreign policy tools.
If anything, the role of such policies
has only increased under the new Russian President,
Dimitri Medvedev. Before taking ofce he was the chair of
the state gas monopoly, Gazprom, a key instrument of
Moscows petro-power.
Recent examples of the role of this power have included
both petro-carrots (using oil and gas to reward allies) and
petro-sticks (using resources to punish states which defy
the Kremlin). As this paper will show, states such as Georgia,
the Ukraine and the Baltic States have been punished with
supply interruptions and higher prices after their govern-
ments turned toward the West. Conversely, those who
remained friendly to the Kremlindsuch as Armenia,
Belorussia, Ukraine before 2005, and the tiny statelets of
Abkhazia, North Ossetia, and Trans-Dniestriadhave been
granted ample oil and gas at subsidized prices.
This paper will seek to analyze the nature and impor-
tance of Russias current oil and gas power. First, in this
section some relevant theories of economic linkage will be
discussed. Second, the paper will briey trace the emer-
gence of Russias current oil and gas inuence. Finally, we
will examine some concrete examples of recent Russian
petro-carrots and petro-sticks. As we shall see, this form
of Russian inuence is increasingly important today, as part
of the resurgence of petro-states worldwide. Since oil and
gas seem likely to remain scarce and expensive in the long
run, the inuence of these states will continue to grow. This
will cause increasing problems for all oil-importing states,
including our own.
Since the classic study by Hirschman (1945), theorists of
economic inuence have pointed to several factors which
E-mail address:
For an overview of the literature on this issue, see Considine and Kerr
(2002), Morse and Richard (2002), Hill (2004), and Stern (2005).
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1879-3665/$ see front matter CopyrightÓ 2011, Asia-Pacic Research Center , HanyangUniv ersity. Produced and distributed by Elsevier Limited. All rights reserved.
doi:10. 10 16/j.euras.2011 .03.004
Journal of Eurasian Studies 2 (2011) 134 143
enable a state to successfully use its economic power
against others (see for example DAnieri, 1999:4856).
First, it is very helpful for the initiating state to have a larger
economy than the target state. This enables it to better
survive any economic conict. By this basic measure, Russia
clearly has an advantage over its neighbors in the former
Soviet Union and Eastern Europe. Second, it is helpful if the
initiating state has a lower percentage of its trade with the
target than the target does with it. For example, Germany
has historically had only about 2% of its trade with Poland,
yet this has often accounted for 3040% of Polands trade
volume (Newnham, 2006:7). Clearly, Germany could easily
impose a painful trade boycott on Poland, at very little cost
to itself. Here again, Russia is in a similar position with most
of its smaller, economically weak neighbors. Both of these
conditions force the target state into what Keohane and
Nye (1989) called asymmetrical interdependence, or
more simply, dependence.
Beyond these general criteria, though, are factors which
relate directly to Russias oil and gas power. First, oil and gas
are products for which a substitute is very difcult to nd.
This is true for all oil and gas importing states, such as the
U.S., but is especially true for Russias energy trading part-
ners. As we shall see, the former USSR deliberately linked
both its own republics and its satellite states into a web of oil
and gas dependency. All pipelines radiated out from Russia,
and the housing, industry, and transport of the former Soviet
bloc were built to run on Russian oil and gas. Oil, perhaps,
can to some extent be brought in by ship from other coun-
tries (although port facilities may be inadequate or, as in
Belarus, nonexistent). Gas, however, can generally only be
shipped by pipeline, and thus all of Russias neighbors have
essentially no other source.
Such a monopoly position gives
Russia huge market power over its customers.
However, while Russias oil and gas may be vital for its
partners, oil and gas revenue is vital for Russia. This
potentially allows some countervailing pressure for Rus-
sias customers, especially in times when oil and gas prices
are low. Then, Russia may need to sell as much as they need
to buy. As we shall see, this seemed to be the case in the
Yeltsin years, with oil prices often at $20 per barrel or less.
Partly as a result, the overall Russian economy was weak,
which enhanced the bargaining power of its partners.
Recently, however, with oil prices peaking at $147.27 per
barrel in July 2008, the balance of power shifted decisively.
With oil and gas this rare and valuable, Russia could easily
nd other buyers. Its natural gas owed throughout
Western Europe and could potentially reach other lucrative
markets, such as China and Japan. Its oil could be shipped
worldwide. Swimming in petro-prots, Russia could easily
afford to impose embargoes on any individual country it
chose to target. While the economic downturn of 2008
20 09 has moderated oil prices temporarily, the underlying
situation remains.
In short, then, scholars of economic linkage can easily
see why countries such as Ukraine, Belarus, and Georgia
face such strong Russian petro-power. This power rests on
Russias larger economy and its dominant position in the
regions overall trade. It is greatly strengthened by the
nature of the products involved. Oil and gas remain rare,
valuable, and almost impossible to nd a substitute for. We
next turn to two other questions: how did this situation
arise, and how has Russia tried to exploit it?
2. The growth of Russias energy inuence
The roots of todays Russian oil and gas inuence date to
the countrys Soviet past. At that point, as we shall see, the
Kremlin consciously began an effort to make Russian
energy indispensable throughout both Eastern and
Western Europe. By the 1970s, Soviet energy inuence was
a major headache for the West ( Klinghoffer, 1977). This
energy inuence declined temporarily in the late 1980s and
1990s, due to low oil prices, the dislocations of the collapse
of the USSR, and the privatization of many oil companies.
However, Russias ample resources and extensive network
of pipelines ensured that its petro-power was ready to re-
emerge under President Putin.
During the 1950s and 60s the Soviet Union deepened its
efforts to link itself to its Warsaw Pact allies economically.
Under the Council for Mutual Economic Assistance (CMEA
or COMECON), economic cooperation of all sorts was
designed to complement the Soviet Blocs military and
ideological ties. While the CMEA had begun under Stalin, in
1949, in those years the Bloc members felt economically
exploited.Khruschev, in contrast, hoped to build a socialist
division of labor,
in which the USSR and its allies would all
ot. At the same time, this web of mutual dependence
would make it very difcult for any state to leave the group.
A key part of this emerging socialist division of labor
was the USSRs role as the dominant supplier of raw
materials and energy to the rest of the Bloc (Kramer, 1985;
Newnham, 1990). A pattern began then which continues
today: Russia deliberately gave its allies oil and gas at
highly subsidized pricesdbut only if they remained polit-
ically compliant (Marrese & Vanous, 1983). Loyal states
which experienced political problems, such as Poland
during the Solidarity period of 198081, were helped with
even more generous subsidies. Meanwhile, critics of the
Kremlindsuch as Romaniadwere forced to rely on the
much pricier world market for fuel.
The reliance of Eastern Europe (and the rest of the USSR)
on Russian oil and gas was only increased by these
subsidies. Huge energy-hungry industries were built up,
many of which (such as petrochemical plants) relied totally
Natural gas can be liqueed and sent by ship, but this requires
specialized facilities in both the sending and receiving state, and thus is
still a relatively rare method. Also, it is possible in theory for gas from
other states to be swapped through Russias pipelines. Thus, for example,
in the relatively lax Yeltsin years Ukraine was allowed to purchase some
gas from Kazakhstan. The Kazakhs sent the gas to Russia, which then sent
the same amount on to Ukraine (Rutland, 1999: 166, 169; Becker, 1998). In
theory, this allowed Kiev to benet from competitiondbut only because
Russia permitted the swap. It had no obligation to allow its pipelines to be
used in this way.
As Kramer notes (1985: 35), in 1979 Hungary received 97% of its
energy imports from the USSR, Bulgaria 92%, and East Germany 90%.
Romania, in contrast, received only 16% of its imports from the Kremlin,
having to buy the rest on the world market.
R. Newnham / Journal of Eurasian Studies 2 (2011) 134143 135
on subsidized fuel. Average consumers, too, were accus-
tomed to proigate energy use. For example, many apart-
ments throughout the Soviet Bloc were built with no
individual thermostats and no gas meters, encouraging
waste. As we shall see, this legacy of dependence remains
a powerful source of leverage for the Kremlin today.
Soon another important part of todays Russian energy
inuence was formed: the idea that the new East European
pipelines would also allow large amounts of Soviet oil and
gas to be exported to the capitalist west (Jentleson, 1986).
This would earn Russia valuable hard currency, and would
also serve as an important political tool, perhaps allowing
Moscow to pry Western Europe away from American
inuence. Even in the early 1960s, U.S. leaders feared that
the Druzhba [Friendship] oil pipeline, then under
construction from Russia to East Germany, would allow the
Soviets to gain inuence in the West. Accordingly, the U.S.
pressed West Germany and other suppliers to halt ship-
ments of large diameter pipe and other equipment to
Russia (Newnham, 2002:132136). The issue simmered for
decades, with another major confrontation erupting under
President Reagan, who pressed NATO to boycott the new
natural gas pipelines which Russia was building to Western
Europe (Jentleson, 1986). Nonetheless, the new links were
completed, and have only deepened over the years.
The stage was set, then, for Russia to be able to use its
energy power in two effective ways:rst, by subsidizing its
allies, and second, by selling to its enemies at full world
market price, reaping rich prots. Either way, the Kremlin
gained power. In retrospect, high oil prices appear to have
been a major factor in the 1970s and early 1980s in
bolstering Moscows belief that it was winning the Cold
War. As Gaddy noted in 2004 (348):
[The present period] is not the rst time that an oil
windfall has shaped thinking in Russia. In the early
1970s the combination of vast new Siberian oil reserves
coming on line and the price shocks due to the 1973
Arab-Israeli war provided what one historian has called
the greatest economic boom the Soviet Union ever
experienced[.] Abroad, the cash was earmarked for
expanded subsidies to Eastern Europe and arms deliv-
eries to new clients in more remote parts of the globe.
By the beginning of the next decade, it would be used to
pay for a costly war in Afghanistan.
Fortunately for the West, and for Russias downtrodden
East Bloc allies, the world market price for oil collapsed in
1986. Many experts, like the late economist and former
Russian Prime Minister Yegor Gaidar, have argued that this
played a major role in the rapid collapse of the USSR
(Gaidar, 2007). Falling oil and gas revenue made it hard for
Russia to afford the Cold War, helping to force a pullback
from Afghanistan and other Third World ventures. The
declining price of oil and gas forced Russia to prioritize its
shipments to the wealthy West, cutting subsidized exports
to Eastern Europe. This helped to destabilize the Soviet
Bloc. Meanwhile, at home, falling oil and gas revenue hurt
Russias economy, putting another nail in the cofn of the
Gorbachev government.
During the Yeltsin years, the slide in Russia
s petro-
er continued. Several reasons can be cited for this. First,
oil prices remained very low. Second, partly as a result, the
overall Russian economy remained in free fall, increasing
the governments desperation for hard currency exports.
Third, these economic dislocations only helped to drive
down oil and gas production, further reducing revenue.
Finally, the privatization of Russian resources helped ensure
that much of the limited petro-power Russia retained
would be exercised by businessmen, not politicians.
With a few brief exceptionsdlike a price spike at the
time of the 1991 Gulf Wardthe world market price for oil
remained below $20 per barrel from 1986 to 2000 (EIA,
20 07b). The effect on Russia was dramatic. Such low pri-
ces further weakened the Russian economy, which was
already staggering from the dramatic effects of Gorbachev
and Yeltsins moves toward the free market. It has been
estimated that a $1 change in the world price of oil causes
Russias GDP to rise or fall about 0.35% (EIA, 2007a:1). Thus,
the fall in oil prices in the 1980sdalmost $30 per barrel
cost Russia about 10% of its GDP, a heavy blow. In addition
to the falling oil price, output also plummeted. By the mid-
1990s, oil production stood at 6 million barrels per day,
about half of the Soviet-era peak (EIA, 2007a:2). Clearly,
such a fall left Russia with much less petro-power.
Overall, with the huge additional disruptions of the end
of Communism, the Russian economy shrank by about 40%
between 1991 and 1998. Not surprisingly, such a steep
economic slide left the Russian government unable to pay
its domestic expenses or its foreign debt. This steady
nancial decline struck at Russias petro-power in two
ways. First, Moscows desperate need for cash forced it to
adopt a policy of export at all costs. Even the modest
income from customers such as Ukraine, receiving heavily
subsidized oil and gas, was vital. Russian leaders worried
that these states could simply refuse to pay, or that they
could turn to alternate suppliersdespecially if the Kremlin
dared to raise prices. Russias market share had to be
defended. Even worse, Ukraine, Belarus, and the Baltic
States stood astride Russias lucrative export routes to the
West. A move to shut down the export pipelines could have
ruined Russias weak credit rating and sent the ruble,
already sliding daily, into a further tailspin. As the ruble
collapse of summer 1998 showed, this was a real threat.
Second, the desperate need to close yawning budget
gaps helped to force the Kremlin to privatize valuable state
assets quickly, at re sale pricesdincluding oil and gas
As the Yeltsin years progressed, privatization steadily
eroded state inuence in the oil and gas sectors. Most oil
resources were sold off, sometimes for pennies on the
dollar. For example, Russian businessman Roman Abra-
movich was able to buy the oil rm Sibneft for about $100
million in 1995dand sell it for over 130 times more ($13.1
billion) ten years later (Kramer, 2005). By the late 1990s,
oligarchs were able to gain control of oil elds without
making any real payments; under the so-called loans for
shares program even short-term loans were enough to
strip assets from the bankrupt Russian state. While foreign
companies were not allowed to buy existing oil elds, they
were permitted to secure majority control of potentially
lucrative undeveloped elds.
By the end of the Yeltsin years the state retained control
over only about ten percent of Russias oil, hardly enough to
R. Newnham / Journal of Eurasian Studies 2 (2011) 134143136
control export policies. Plans were underway for even the
last major state-owned oil company, Rosneft, to be sold to
private owners. In fact, it was spared in 1998 only because
private buyers rejected the cost to buy 75% of the rm, $2.1
billion, as far too high (Lane, 1999:35). Ironically, by 2006
Rosneft would be valued at about $80 billion, based on the
$10.4 billion it received when a mere 15% of its shares were
offered for sale (Kramer, 2006a).
In the gas sector the Kremlins role was stronger, but still
weakened. Most natural gas production remained under
Gazprom, the state-owned energy giant created just before
the fall of the USSR. However, large shares of the company
had been sold to domestic and foreign buyers, reducing the
states stake to about 38%. While the state retained inu-
ence, Gazproms decisions were increasingly based on
economic, not political calculations. Its usefulness as a tool
of state leverage was declining. In the last years of the
Yeltsin era, speculation was rampant that even Gazprom
would be fully privatized, which would have virtually
eliminated the Kremlins energy power.
In the latter years of Yeltsins rule many analysts
concluded that not only did the Kremlin not control the oil
and gas industrydin many ways, the industry controlled it.
The leading oligarchs played a large role in Yeltsin s narrow
reelection in 1996, gaining much inuence. It seemed that
even in foreign policy energy corporations played a large,
if not a dominant role (Rutland, 1999:183). Fragmentation
of the Kremlins authority had reached a point where no
clear decision-making procedure could be discerned at all.
The contrast to todays forceful Russian state was stark.
3. Russias Petro-Power returns
Under President Putin Russias energy inuence reached
unprecedented heights. Several factors combined to
produce this result. First, the world market for oil and gas
greatly favored Russia and other producers in 20002008.
These products became both valuable and rare, ideal
preconditions for the use of any form of economic linkage,
as noted in the theory section above. While prices have
moderated in the current worldwide recession, a return to
the era of cheap oil as in the 1990s is unlikely. Second, the
Putin administration moved to take control of the countrys
oil and gas sector. This allowed Russia to harness its
potential economic power for state purposes, a crucial
condition which was largely lacking in the late Yeltsin
years. Third, Russia moved aggressively to increase its
control over oil and gas assets outside its borders, notably
the pipelines which carry its products to the world. In sum,
Russia is now much more free to use its oil and gas to either
painful cost or offer lucrative benets to states
which it seeks to inuence.
A key factor in the rise of Russias energy power was
the state of the world market in oil and gas during Putins
reign. Supplies were tight worldwide, meaning that Rus-
sias customers had few alternatives to buying from Mos-
cow. States could not easily evade Moscows energy
sanctions or impose counter-sanctions. For example, the EU
would have found it virtually impossible to boycott Russian
oil or gas to express its distaste with Putin s foreign policy
or his increasingly autocratic actions at home. Also, prices
soared to record highs after Putin became President in
20 00, with oil reaching almost $150 a barrel by mid-2008.
This turnaround from the Yeltsin years allowed Russia to
rake in massive prots from oil and gas sales. This in turn
allowed the Kremlin to pay off Russias foreign debts, which
loomed so high under Yeltsin that they prevented Russia
from fully using its petro-power, as was noted above. Today,
while the recession has cut into Russias nancial reserves,
it remains far more solvent than in the 1990s. If a country
such as Belarus threatens to temporarily suspend Russian
oil or gas shipments through its pipelines, Russia can shrug
off the threat. It knows that it can afford a temporary drop
in revenue, unlike in the Yeltsin years.
The tightness in world markets allowed Moscow to
retain and expand its dominant market shares among its
energy customersand also to reel in new customers, such
as China and Japan. For example, Belarus obtains essentially
all of its natural gas from Russiad99%. The Baltic States
depend on Moscow for about 89% of their gas supplies,
Georgia for 88%, and Ukraine for 69%. Even some Western
customers have similarly high levels of dependence, such
as Austria (72%) and Greece (85%) (EIA, 2007c:6).
These underlying conditionsdhigh prices, tight
supplies, large market sharesdall meet the preconditions
noted in the theory section for the use of economic power.
Yet another condition had been allowed to slip away in the
Yeltsin years: state control of resources. As noted above,
almost all of Russias oil reserves were privatized in the
Yeltsin years. Even mighty Gazprom was being considered
for privatization. Under Putin this laissez-faire approach
ended abruptly.
The prime example of this, of course, is the treatment of
Yukos, considered by many to have been the best-run
private oil rm in Russia. Mikhail Khodorkovsky, the
founder of Yukos, was apparently targeted because he
directly threatened Putins control of the energy industry
(Baker & Glasser, 2007: Chs. 14 and 17). Seemingly unaware
of the looming danger, he was moving condently forward
in several areas which angered Putin. He was planning to
acquire another large Russian oil company, Sibneft, thus
taking a leading role in the oil sector. To nance such
expansion, he was considering selling a large stake in Yukos
to Western investors. And he was openly backing anti-Putin
political forces in Russia itself. The result is well known:
Khodorkovsky was arrested on what were widely regarded
bogus tax charges and eventually sentenced to eight
years in a Siberian prison. More seriously, his rm was
destroyed. The Russian government demanded higher and
higher payments for back taxes, and Yukos went bankrupt
and was forced to sell its assets. In a farcical auction held in
December 2004 the largest share of Yukos oil assets were
transferred to the state-owned Rosneft.
More quietly, the Kremlin then continued to consolidate
its role in the oil sector. In late 2005, state-owned Gazprom
purchased privately-owned Sibneft for $13.1 billion
Rosneft bought the assets through a front, Baikal Finance Group,
which it formally took over three days later. The price was vastly
understated$9.35 billion for assets worth more than $60 billion (Meyers
and Kramer, 2007).
R. Newnham / Journal of Eurasian Studies 2 (2011) 134143 137
(Kramer, 2005), eventually renaming its acquisition
Gazprom Neft [oil]. In this case, the sale was regarded as
essentially voluntary, with a fair market price being paid.
The owner, Roman Abramovich, was seen as having clev-
erly cashed out before the state raised pressure on him.
Yet tougher tactics remained possible, as the case of
a smaller rm, Russneft, clearly shows. In the summer of
20 07, its owner, the oligarch Mikhail Gutseriev, initially
refused pressure to sell. The government swiftly responsed
with questionable tax allegations, like those used against
Yukos. Gutseriev folded, selling to a Kremlin-approved
buyer, aluminum magnate Oleg Deripska. Then he made
the mistake of publicly denouncing the sale as unfair and
forced. A warrant was issued for his arrest, but he had
prudently left the country (Kramer, 2007).
Despite the growth of Rosneft and the creation of
Gazprom Neft, about 60% of Russias oil resources remain in
private hands (Hashim, 2007:11). However, the remaining
private rms have clearly understood Putins message. All
now back Putin and Medvedev in domestic politics and
eagerly follow their line in foreign policy questions. This is
the price of doing business in todays Russia.
As noted above, part of the reason for Putins adminis-
tration to target Yukos was fear of the rms efforts to court
foreign investors. Clearly, Moscow could not control the
Russian oil sector if large, independent foreign rms either
owned Russian energy companies or ran oil elds directly.
Putin moved aggressively to try to squeeze foreign
companies out of their majority holdings in the energy
A prime example of Russias new energy xenophobia
was the treatment of thejoint venture known as Sakhalin-II,
controlled by Shell, which had been created in the more
exible Yeltsin years. Huge political pressure was brought
to bear on Shell in late 2006 (Kramer, 2006c). A key
component of this was the assertion by the Russian envi-
ronmental agency that the project could damage the
environment. Given the dismal record of both Soviet and
Russian oil exploration in this areadwith their projects
falling far below Western environmental standardsdthis
claim was met with universal disbelief. Mysteriously, once
the company agreed to sell majority control of its project to
Gazprom at the end of 2006, the environmental objections
To defend its Petro-Power, Russia strives to keep as
many of its partners as possible in a state of energy
dependence, a dependence which can be manipulated as
Russia chooses. A key component of this strategy is the
control of pipelines and other energy facilities in neigh-
boring countries. Russia aims to control pipelines in Poland,
Belarus, Ukraine and the Baltic states which take Russian oil
and gas to other countries. If it cannot control these transit
routes, it will try to bypass them, for example with the new
Nord [North] Stream pipeline through the Baltic Sea,
running directly from Russia to Germany. At the same time
Moscow controls pipelines through its own territory which
carry oil and gas from the Caspian and Central Asian
countries, and works hard to ensure that these countries
alternative export routes.
One of the tactics Russia has used to control pipeline
routes is one mentioned abovedthe use of fabricated
environmental arguments. For example, a trans-Caspian
pipeline has been proposed, which could allow Central
Asian gas to reach the West via Azerbaijan and Georgia,
bypassing Russia. Not surprisingly, the Russian environ-
mental agency immediately denounced it as a looming
threat to marine life. Oddly enough, the much longer Nord
Stream trans-Baltic pipeline, which the Kremlin favors, was
quickly approved by the same agency as posing no threat to
the sea at all (Watchdog Okays, 2007).
4. Petro-carrots: oil and gas as economic incentives
In this section one side of Russias energy power will be
examineddits use as a form of positive linkage, or incen-
tives. As we shall see, oil and gas allow Russia to buy off
foreign companies and individuals. More importantly, the
Kremlin can manipulate whole countries. As in the days of
the Warsaw Pact, loyal allies are rewarded with ample
amounts of subsidized energy, at great cost to Moscow.
Today, of course, the recipients are different, since most of
Central Europe has entered the EU and NATO and is no longer
allied to the Kremlin. Thus, as we shall see, major recipients
of petro-carrots have recently included the Ukraine (under
President Kuchma), Belarus, and several small secessionist
enclaves in Moldava and Georgia. While this aid has not
always succeeded (notably in Ukraine at the time of the
Orange Revolution), it has helped to keep pro-Kremlin
leaders in power in Belarus, Abkhazia, South Ossetia, and the
Trans-Dniestr region. This inuence in what Moscow tell-
ingly calls the near-abroad is highly important, since it
sustains Russias ambitions to remain a major power.
Russian generosity to the Ukraine under President
Leonid Kuchma was a clear case of using oil and gas pricing
to favor a client state. Kuchma, who led the Ukraine from
1994 to 2005, was quite friendly to Russia, signing a Treaty
of Friendship, Cooperation and Partnership with Moscow,
designating Russian as an ofcial language, and siding with
Russia on many foreign policy issues.
Not surprisingly, these policies were rewarded by the
Kremlin with subsidized oil and gas sales. Throughout
Kuchmas time in ofce, Moscow kept gas prices frozen at
about $50 per thousand cubic meters (TCM). In fact Kiev
paid far less than even that, because much of the supply
was simply given to Ukraine as transit fees for gas being
sent on to Western Europe. Also, Ukraine was allowed to
fall far behind on even the limited payments it did owe,
piling up a large debt to Russia. The political nature of these
subsidies became only too clear after the pro-Western
Orange Revolution of 2004, when Kuchma was succeeded
by Viktor Yuschenko. As we shall see in the next section, oil
and gas carrots
y became sticks in Moscows ght
against Yuschenko.
Another prime example of a country favored by Russian
oil and gas incentives is Belarus. Clearly, Russia was not
rewarding Belarus for political or economic reforms; under
the dictatorial President Lukashenko, Belarus has remained
a Soviet-era remnant in the region. Yet Lukashenko has
consistently backed Moscow in foreign policy, to the extent
of pursuing for years the hope of creating a new federation
with Russia. Thus the Kremlin has ensured the Belarus
would be favored with extremely cheap gas. In 2006,
R. Newnham / Journal of Eurasian Studies 2 (2011) 134143138
Belarus paid only $47 per TCM, at the same time Russia was
demanding $230dalmost ve times morefrom the new
pro-Western Ukrainian government (Vinocur, 2006).
The countrys feeble, still largely state-run economy
even has difculty paying for the extremely discounted gas
it receives. Until recently, Russia has been willing to over-
look this. During the Yeltsin era, for example, Belarus was
able to pay its debts by such measures as giving up its
claims on joint Soviet-era assets in Russia (1993) and giving
up claims for damage caused by Soviet troops in Belarus
(1996) (Lane, 1999: 168). Both of these claims were rather
far-fetched, since Belarus had seized Soviet facilities on its
own territory and damage from the Soviet-era military was
hardly Yeltsins responsibility alone.
Putin gradually increased the pressure on Belarus to
pay somewhat fairer prices for its energy, although the
country is still subsidized. As seen in Table 1 below, Russia
increased prices for its allies, such as Belarus and Armenia,
but raised prices for more hostile statesdsuch as Ukraine,
Georgia and Moldovadby far more. Thus a price scissors
was created, which allows Moscow to benet in two ways.
First, it greatly increases its overall revenue, as all
customers pay more. Second, the price differential allows
it to punish its enemies and reward its friends at the same
time. It is hard for Belarus to complain about having to pay
$100 per TCM for its gas when Georgia is paying more
than twice as much.
The massive price differentials and generous treatment
of Belarussian debts have been instrumental in keeping the
country aoat economically, and thus in keeping
Lukashenko in power. The policy must therefore be scored
as a signicant success for Moscow. The West has long tried
to sponsor opposition movements in Belarus, as in the 2006
presidential election when the Zubr movement united
behind the pro-Western candidate, Alexander Milinkevich.
Yet Lukashenkos claim to have created stabilitydthanks
in large part to low unemployment, subsidized food and
energydhelped ensure that his opponents support
remained limited. He would likely have won reelection
even without the paranoid police tactics and electoral
cheating which he used to ensure overwhelming victory.
Energy incentives helped to ensure that there would be no
Orange Revolution in Minsk.
In addition to the generous petro-subsidies offered to
compliant neighbors like Belarus, Moscow has also cleverly
used incentives to support several pro-Russian enclaves in
less compliant states. Moldova, for example, has long been
thorn in Moscows side, with its nationalistic policies
alienating the Russian minority there. In response, Russia
has supported the breakaway Trans-Dniestr Republic, run
by Russian-speakers. Like Belarus, it has preserved the
symbols and style of the old USSR. Also like Belarus, this
tiny republic has been unable to pay for even its subsi-
dized gasdyet Moscow has remained tolerant. By March
20 07 the republic had accumulated $1.3 billion in debt to
Gazprom, which it announced it simply would not pay
(Solovyov, 2007). Yet the gas kept owing.
Similarly, subsidized oil and gas has been provided to
two breakaway regions of Georgia, a state which (as we
shall see below) has been a major target of Russian oil and
gas sanctions. South Ossetia and Abkhazia, both backed by
Russian peacekeeping troops, have carved out de facto
independence from Georgia, and their deance allows
Moscow to increase military and political pressure on the
Georgian leadership (Maloney, 2007). Moscow has spent
lavishly to support them. For example, Gazprom plans to
spend about $600 million building new pipelines and gas
infrastructure in South Ossetia (Lowe, 2007), a region with
about 70,000 inhabitants. Clearly, this is a politically-
motivated investment. All of these enclavesdthe Trans-
Dniestr Republic, Abkhazia, and South Ossetiadare
impoverished, backward areas which could not survive
economically without Moscows help. The fact that all of
them remain in existence, 16 years after the collapse of the
USSR, must be credited in part to Moscows petro-carrots.
Another aspect of Russian oil and gas power is its
potential use in bribing individuals and corporations. By
offering corporations shares in oil and gas elds, pipelines,
and other projects, Russia can win inuential allies abroad.
In recent years Russia has been careful to keep majority
control of such projects in its hands. Yet with energy prices
sky-high, foreign rms seem willing to accept minority
stakesdas Shell did when it was forced to cede control of
the Sakhalin-II project.
Other Western companies have been just as vulnerable
to the lure of investing in Russias lucrative energy
sectordon Russias terms. Germanys energy partnership
with Russia, for example, has deepened as German
have signed on as minority shareholders in
a number of deals. One of the 11 members of the Board of
Directors of Gazprom itself is now Burckhard Bergmann,
head of the German gas rm E.ON Ruhrgas AG (www. His company and BASF each own
a minority stake in Nord Stream AG, the Gazprom-
controlled company which is to build a controversial
pipeline under the Baltic Sea to bring Russian gas to
Germany. Similarly, Gazprom recently signed a deal with
Eni, the Italian energy giant, to build a South Stream
pipeline, directed toward Italy and Austria (Dempsey,
20 07). The EU had been striving to control such deals,
uniting its members behind an Energy Charter which
would regulate the West European market and limit
Russian dominance. Yet the lure of quick prot was too
tempting. Most companies are well aware that if they do
not accept Moscows terms, their competitors will. This
enhances Russian bargaining power.
Oil and gas prots can also be used to win over politically
important individuals. Saddam Hussein was widely repor-
ted to have used this tactic after the rst Gulf War, when his
regime covertly gave oil export permits to individuals who
were helping Hussein politically and economically. Such
Table 1
Natural gas prices charged to Russian customers ($/TCM).
2005 2006 2007 2008
Armenia $56 $110 $110 $110
Belarus $46 $46 $110 $125
Georgia $63 $110 $235 $235
Moldova $80 $110 $170 $190
Ukraine $50 $95 $130 $160
R. Newnham / Journal of Eurasian Studies 2 (2011) 134143 139
permits, allowing the export of steeply discounted oil, could
then be resold to oil dealers at a large prot.
Some have seen similar implications in Russias attempts
to involve prominent Westerners in running state-
controlled oil and gas companies. The most well-known
case is that of Gerhard Schröder, which has been very
controversial in Germany. The former German Chancellor
had long favored close ties with Russia, specically pushing
hard for close energy ties. He played a key role in negotiating
the controversial Nord Stream project. Over a month after
his defeat in the September 2005 German election, in one of
his last acts in ofce as a lame duck, Schröder approved
a billion Euro German government loan guarantee for the
project. Within days of his departure from ofce, Schröder
was suddenly named Chairman of the Board of Nord Stream
AG, the joint Russian-German company which is to build
and operate the pipeline (Follath and Schepp, 2007). The
appointment led to widespread anger in Germany, where it
was seen as a scandalous conict of interest, and the EU
launched an investigation into the loan guarantee deal
(Buck and Benoit, 2006; Vinocur, 2006).
In the wake of this success, President Putin reportedly
attempted to score another personnel coup in late 2005,
offering the chairmanship of the state-owned Rosneft oil
company to Donald Evans (Putin, 2005). Evans had left
ofce only months before as U.S. Secretary of Commerce.
He was well-known as one of President Bushs personal
friends, having been close to him since they both lived in
Midland, Texas, and serving as chair of his 2000 presiden-
tial campaign committee. Clearly, Moscow hoped that by
hiring Evans Russia could inuence the President. Perhaps
sensing that the job offer would embarrass Bush, Evans
eventually declined.
5. Petro-sticks: oil and gas as economic sanctions
In contrast to Russias generous treatment of its political
allies, those who oppose the Kremlin have faced economic
punishment. This has included punitive price hikes and
even oil and gas embargos. These tactics became obvious to
the world at the start of 2006, when Russia cut off gas
shipments to the Ukraine and Georgia. Ukraine faced
another punitive gas cutoff at the start of 2009. The Baltic
states have also been targeted. However, petro-sticks have
also been used in many more subtle ways, as we shall see,
through measures such as punitive price increases and
demands for debt payment. While these pressure tactics
have not always brought immediate compliance with
Moscows wishes, they have had the dual effect of weak-
ening Russias opponents and setting an example pour
lencouragement des autres.
The Ukrainian case is one of the most well-known
examples of Russian oil and gas sanctions. This is true not
only because the Ukraine is an important state in its own
right, but because cutting off Russian gas to that state can
have a major impact on broader world markets. The main
Russian gas pipeline to Western Europe runs through
Ukraine, meaning that Kiev can easily react to any Russian
supply cuts by reducing or stopping the ow to the rest of
Europe. Under President Yeltsin this threat was enough to
tie the Russians
forcing them to compromise
repeatedly with Kiev on gas supplies and pricing. As one
author put it, voicing the common view in the late 1990s,
any Russian threat to cut supplies was not really credible,
because Moscow needed the transit route as much as Kiev
needed Russian gas (Rutland, 1999:168). Under Putin, this
relatively benign policy endeddto the consternation of
both the Ukrainians and Western Europe.
In late 2004 the Ukraine was convulsed by the dramatic
dispute between presidential candidates Viktor Yanukovich
and Viktor Yuschenko. Yanukovich, the designated
successor of the incumbent president, Leonid Kuchma, was
considered friendly to Moscow, and the Kremlin made its
support for him clear (Yasmann, 2006). When Yanukovich
was proclaimed the winner in a fraud-tainted vote in
November 2004, Moscow rushed to accept his victory. The
subsequent Orange Revolution by supporters of the pro-
Western Yuschenko, which eventually succeeded in forcing
a new election, was roundly condemned by Moscow.
Yuschenkos victory in the second contest in late December
seemed to push the Ukraine out of the Russian orbit. Even
worse, he succeeded due to a popular uprising backed by
the West. Such a color revolution (rst seen in Serbia with
the overthrow of Milosevic, then later in Georgia,
Kirghizstan and Lebanon) seemed to Moscow to be
a possible model for an uprising against Putin himself. As
such, it could not be tolerated.
Accordingly, during the tense electoral campaign the
Kremlin and its surrogates openly brandished the gas
weapon. As the leader of one pro-Moscow Ukrainian
organization said, what else but gas could convince the
people of Ukraine that its better to be a friend of Russia
than the EU and NATO? (Yasmann, 2006). It was made
clear that a vote for Yuschenko was a vote for winters with
no heat, shuttered factories, and economic collapse. After
Yuschenkos nal victory at the end of 2004 these threats
began to be put into action.
Ukraines 2005 gas contract with Gazprom had already
been signed. But it soon became clear that after that
the country would face a harsh price increase. Gazprom
claimed, unconvincingly, that this was simply part of
a natural increase to reach world market prices (WMP)di.e.,
the prices paid by Western European states. Somehow,
though, this need to increase the gas price had never been
noticed under Kuchma, when prices held steady at about
$50 per TCM for many years. Now, suddenly, Moscow
demanded an almost ve-fold increase to West European
levelsdabout $235 per TCM. In addition, Gazprom suddenly
demanded payment of Ukraines accumulated debt for gas
service. If successful, Gazproms demands would have
bankrupted Ukraine.
Matters came to a head at the end of 2005, when the
gas contract expired and the two sides could not
reach a new agreement. To the worlds surprise, at the start
of 200 6 Gazprom quickly began to shut off the gas ow to
the Ukraine. Even some commentators on Russian state-
owned television were quite open in stating that the gas
cutoff is retribution for the Orange Revolution (Yasmann,
20 06). Moscow ignored Kievs threats to retaliate by
cutting the ow on to Western Europe. That regions
supplies, too, fell greatly in the next two days, before
normal shipments were restored on January 3.
R. Newnham / Journal of Eurasian Studies 2 (2011) 134143140
In the end, the Kremlin did not achieve a complete
victory. It was, however, able to force the Ukraine to agree
to double the price it paid for gas, to about $100 per TCM.
This imposed a massive economic drain on the Yuschenko
regime. The price also had the virtue of still being below the
WMP, which would allow the Kremlin to easily justify
future price increases. Yuschenko and the Ukraine were
thus effectively held hostage, never knowing when the next
economic blow would fall. And the price increase had
a political effect; with rising economic discontent,
President Yuschenkos party did less well than expected in
the March 2006 parliamentary elections, stalling the
progress of his Orange Revolution (Myers and Kramer,
20 06).
Predictably, Russian meddling continued after 2006.
Every action of President Yuschenko was met with more
threats of gas supply cuts, price increases, or new debt
repayment demands. The pattern was the same in the fall
20 07 parliamentary elections in Ukraine, which brought
Yuschenkos ally Julia Timoshenko into power as Prime
Minister. Again, the Kremlin tried to induce voters to favor
her opponent, Yanukovich, with thinly veiled economic
threats. When that failed, Gazprom again stepped in,
cutting Ukraines gas supplies in early 2008 in yet another
dispute over debt repaymentdwhich was widely seen as
punishment for Timoshenkos victory (Harding, 2007).
Finally, at the start of 2009 Gazprom again cut off gas
shipments, again greatly reducing supplies sent to Western
Europe for several days.
As the victories of Yuschenko and Timoshenko show, the
Kremlins pressure tactics do not always appear to work
immediately. However, when Moscow is deed there is
a priceto pay; the Ukrainian economy hassuffered a real drain
thanks to Gazprom.As DavidBaldwinnotes in his classic work
Economic Statecraft, the success of sanctions cannot be
measured only by whether they immediately bring political
victory. One must also count the costs imposed as a success,
since they weaken the opponent (Baldwin, 1985:132133).
Gazproms price increases also have the added virtue of
simultaneously strengthening the Kremlindquite directly,
since Gazprom is state-owned.
Additionally, the Ukraines
economic problems have imposed a political cost on
Yuschenko and his pro-Western allies, weakening both pol-
itical support and their ability to implement their campaign
promises. Every Ukrainian hryvnia sent to Moscow for gas is
one that cannot be spent on popular programs such as health,
education or public works.
Furthermore, as noted above, the Kremlin successfully
showed its resolve by ignoring Ukraines efforts to disrupt
gas ows to Western Europe. For years transit states such
as Ukraine, Belarus, and Poland had felt immune from
Russian sanctions, believing that they could live without
Russian gas better than Russia could live without West
European hard currency from gas sales. But now rising oil
and gas prices had enabled Moscow to pay off its debts and
build up huge currency reserves, freeing it to use its
resource leverage more aggressively. This is an important
lesson for the future: when push comes to shove, the
Kremlin will cut Western Europes energy artery to achieve
its political goals. This lesson has struck home in Western
Europe, with leaders throughout the EU now following
every energy dispute between Russia and its neighbors
with obvious concern. The EU has been pushing Russia to
accept an Energy Charter, pledging to forswear politi-
cally-motivated embargoes, yet Moscow has steadfastly
In the future, Ukraines limited leverage as
a transit state looks likely to decline further, as Russia nds
alternative ways to reach its wealthy Western customers.
As noted in the previous section, the new Nordstream
pipeline will link Russia to Germany under the Baltic Sea
and the South Stream route will cross the Black Sea to
connect Russia directly to Bulgaria and thus to Southern
If anything, the position of other lands targeted by
Russian petro-sticks is even weaker than that of Ukraine.
The Baltic States and Georgia, for example, are quite small,
and thus cutting off their oil and gas costs Moscow almost
nothing. These states also have less control over the transit
of Russian oil and gas to other countries than does Kiev.
Accordingly, Russia has felt free to use its petro-power
against them rather openly.
The Georgian case is similar to that of the Ukraine in that
Russian sanctions were triggered by a color revolutiondthe
Rose Revolution of November 2003, which overthrew
President Shevardnadze and led to his replacement in early
2004 byMikheil Saakashvili, supportedby the West. As in the
Ukrainian case, Russia soon began to threaten Georgias gas
supplies. In this case, though, the Kremlin seems to have
resorted to more direct measures than a gradual reduction in
gas pressure. On January 22, 2006, just days after the ow of
gas to Ukraine was resumed, both gas pipelines to Georgia
were suddenly severed by a series of carefully coordinated
bomb blasts. At the same time, the electric lines supplying
Georgiawere also cut (Chivers, 2006). To this day the Kremlin
denies any complicity in the affair, but many observers have
their doubts.
In fact, the deal was even more benecial to Moscow: the higher price
was arrived at by mixing cheap gas from Central Asia, costing only about
$65 per TCM, with gas bought from Gazprom at full world price, about
$230 TCM (EIA, 2007c:6).
This is a notable contrast to most forms of economic sanctions, which
impose costs on both the target and the sender. For example, President
Carters grain embargo against the USSR, imposed after it invaded
Afghanistan in 1979, was very unpopular in the U.S. While it hurt Moscow
somewhat, it seemed to hurt struggling American farmers more. Thus the
embargo was hastily revoked by the incoming Reagan administration,
despite Reagans erce anti-communism.
Historically speaking Russias position is very ironic. During the Cold
War the USSR was targeted by Western embargoes, such as multilateral
technology sanctions, which hurt it greatly. From the rst days of the
Soviet state Moscow tried to persuade Western states to sign agreements
prohibiting embargoes. For example, an important factor in the Rapallo
agreement between Germany and Russia in the 1920s was Germanys
agreement to renounce embargoes (Newnham, 2002:80). Now, it seems,
the shoe is on the other foot, and it is Western nations which must ask
Russia to renounce the economic weapon.
Georgia can cut off Russian gas shipments to Armenia, an ally of
Russia, which gives it some potential leverage. And some Russian oil is
shipped to the West through Baltic ports, although Russia has greatly
reduced this amount.
R. Newnham / Journal of Eurasian Studies 2 (2011) 134143 141
Here again, while the Saakashvili government did not
immediately fall or begin to follow Moscows line, Georgia
paid a heavy price. Moscow was able to force Georgia to
agree to massive gas price hikes, from about $63 per TCM in
20 05 to $110 in 2006 (see Table 1). Finally, in 2007, Georgia
became the rst ex-Soviet state to pay full WMP for its
gasd$235 per TCM. When added to other Russian
sanctionsdsuch as refusing to buy Georgian wine and
produce on health and safety grounds and expelling
thousands of Georgian guest workers as illegal immi-
grantsdthe damage to Georgias economy has been
considerable. The weak economy has in turn put Saakashvili
on the defensive politically. In November, 2007, in the face of
widespread protests, he was forced to declare a temporary
state of emergency, which simultaneously weakened his
regime and undercut his democratic credentials. As noted
above, Georgia has been further weakened by Russias
generous subsidies to the breakaway regions of South
Ossetia and Abkhazia, which could not survive without
Russian support.
Another interesting case of Russian petro-power is the
sanctions against the Baltic States, which have long angered
Moscow with their pro-Western orientation. Russia now
seems willing to use its resources to punish these states for
any kind of economic or political deance, no matter how
small. In July 2006, for example, Russia shut down the oil
pipeline which supplied the Mazeikiai renery in Lithuania.
This installation is crucial to the region, since it supplies the
rest of the Baltic states. It is also the largest source of
revenue for the Lithuanian government. Formally Russia
blamed an oil leak for the shutdown, a leak which it
claimed would somehow take up to two years to repair
(Kramer, 2006b). Interestingly, this technical problem
appeared only after Lithuania had agreed to sell the
renery to a Polish company, PKN Orlen, rather than
accepting rival Russian offers. Fortunately Lithuania was
able to retool the renery to run on oil delivered by sea.
However, shortly afterward the facility was hit by a major
re, whose origin remains unexplained.
Political deance, too, is now speedily answered by the
Kremlin. In May 2007 Estonia took a small but symbolic
step. It decided to move an old Soviet war memorial from
the center of its capital, Tallinn, to a more remote park. Both
Moscow and the local Russian minority saw this as a slap in
the face to the Red Army, whose troops had liberated
Estonia from the Nazis. Many Estonians clearly saw the
liberation more as a new enslavement. The dispute quickly
escalated, and Russia announced that oil shipments to
Estonia, normally delivered by rail, would unfortunately be
stoppeddallegedly due to maintenance work
07). In the end, the embargo lasted only two weeks,
but was quite costly, since all freight shipments were
stopped, which affected coal and many other products as
well. Russias economic actions were accompanied by
attacks on Estonias embassy in Moscow and by a new
tacticda cyber-assault on a variety of Estonian websites.
The Baltic cases were a shock to the West. Unlike
Ukraine and Georgia, Estonia and Lithuania are members of
both NATO and the EU, so Russias economic sanctions
against them were a slap at both organizations. The thin g
leaf of technical problems was convincing to no one.
In all, it is clear that in recent years Russia has begun to
use its petro-power with new condence. It openly
rewards its friends and punishes its enemies, with carefully
calibrated tactics which escalate from threats to price
increases to outright embargos. As shown in this section,
these tactics may not always work immediately, in the
sense of bringing political compliance. But they always
inict costs on Moscows opponents, both economically
and in increased political instability. And as Baldwin
reminds us, if economic sanctions increase a target
countrys cost of noncompliance they are having an
important effect (Baldwin, 1985:132).
6. Conclusion
As this paper has shown, Russias petro-power has
become an increasingly clear threat to all the states which
buy Russian oil and gas. This is obviously especially true for
the small, poor, highly dependent states of what Russians
call the near-abroaddthe former Soviet states. As we have
seen, Russia has used its inuence both to reward its friends
and punish its enemies, seeking to regain its inuence over
the region. It has shown it can be successful, and even when
it is not it can impose high costs on those who dare to defy it.
Yet the impact of Russias actions extends far beyond
Russias immediate neighbors. For example, Western
Europe now has great cause for concern. Although it is less
dependent on Russia than the former Soviet states, Mos-
cows willingness to ruthlessly use its petro-power
has led
much worry among EU statesdand, as we have seen, to
increasing efforts to persuade Russia to sign an Energy
Charter restraining its inuence. Other countries, such as
the U.S., also have reason to be concerned about Russias oil
wealth. While the U.S. does not depend directly on Russian
oil and gas, it has many allies that do. Russia also exerts
some inuence on global prices, especially in todays
unsettled, nervous sellers market. It has recently tried to
enhance this leverage by creating an organization of
natural gas exporters, modeled on OPEC. Any decision by
Moscow to limit production would immediately cause
world prices to jump.
Finally, the U.S. and others around the world are also
concerned about another facet of Russias petro-power:
the huge war chest of oil and gas revenue that Moscow has
accumulated. By early 2008 Russia held over $157 billion in
its Stabilization Fund, one of a number of sovereign
wealth funds which have emerged in recent years world-
wide (Kramer, 2008). Disturbingly, these sovereign wealth
funds are often held by countries which are undemocratic
and have limited commitment to free markets. Also, more
and more, countries with regional or worldwide geopolit-
ical ambitions control large wealth funds. For example,
Russia, Venezuela and Iran rank among the top wealth fund
holders (Truman, 2007:3). And this new wealth is clearly
based on oil and gas; of the 19 top fund states in 2007, at
least 13 had wealth based mainly on that source (Ibid., and
authors calculations).
In short, the surging price of oil and gas has driven
a fundamental reallocation of global wealth. This can be
seen in the fact that oil exporting states had a collective
balance of payments surplus of $88 billion in 2002 and
R. Newnham / Journal of Eurasian Studies 2 (2011) 134143142
$571 billion in 2006, an increase of almost ve times in only
four years (Andersen, Fick, & Hansen, 2007:50). Despite the
current decline in oil prices, projections for the longer-term
future are even more sobering. A recent report projected
that sovereign wealth funds could expand from $2.5 trillion
in 2007 to $27.7 trillion in 2022 (Sesit, 2007). Thus, as the
world warily watches the rise of politically ambitious
petro-states like Russia, there is reason for concern. And
all countries, not just Estonia or Belarus, should be aware of
the cynics version of the golden rule: He who has the gold
makes the rules.
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... About the energy security of Russia, there is a small bunch of researches on energy security in Russia. However, they mainly use energy exports as a concept of Russian energy security, which is considered a tool of Russian foreign policy (McFaul, 1997;Goldthau, 2008, Newnham, 2011, or they have the concept of energy security emphasizing just an aspect of the Russian energy sector, which is natural gas export (Romanova, 2008;Sharples, 2013). Considering the definition and constituting factors of importer's energy security, such a viewpoint too much simplifies the energy security of energy exporting countries. ...
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Energy security has been a question of how to stably supply fossil energy resources to an economy at the appropriate price as needed. Therefore, it has been a question for energy importers, and energy security issues in large energy-producing and exporting countries such as Russia have received little attention. In this study, the energy security of exporting countries is defined as an economic contribution through stable production and export of fossil energy resources based on the analysis of existing researches. Along with the definition, an energy security index consisting of stability, economy, and diversity of energy production and exports is developed. Using the index, the recent energy security level of Russia is estimated. As a result, it turns out that Russia's energy security level has generally improved since 2000, and improvements in the stability and diversity of energy production and exports have driven this trend. The expansion of crude oil and natural gas exports to the Asian market, mainly Korea, China, and Japan, has had a significantly positive effect on improving Russia's energy security. However, at the same time, it has brought increasing dependence on crude oil exports to China, indicating that Russia needs to diversify exports within the Asian market. On the other hand, the economic feasibility of energy production and exports has continued to decline rapidly, limiting the improvement of Russia's energy security index. Keywords: energy security of Russia, energy security index, energy-exporting countries, diversity of energy system, stability of energy system, the economic feasibility of energy production In most developed countries, modern energy resources play an important role in terms of economic growth and social development. Energy resources are essential components of production, and the quality of people's lives in a country depends on a stable supply of energy. Therefore, energy security issues have been considered one of the top priorities of the national security agenda. Geographically, the uneven distribution of modern energy resources such as coal, oil, and natural gas has made energy security issues even more important for countries that rely on imports in national energy supplies. Against this backdrop, energy security has been studied in various fields. Energy security is commonly defined as a reliable and adequate supply of energy resources at reasonable prices (Bielecki, 2002). International Energy Agency (IEA, 2019) defined energy security as the uninterrupted availability of energy sources at an affordable price. Energy security has many aspects: long-term energy security mainly
... In turn, the media, including television and radio stations, newspapers, and Internet portals, are completely dependent on and controlled by the authorities, hence their messages are characterized by political elements, propaganda, ambiguity, and half-truths. The Russian Generalizing, the foreign policy of the Russian Federation is based on the principle of stick and carrot (Newnham, 2011). In this simple scheme, the stick is hard means of influence, such as military and economic aspects. ...
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Objectives The article considers the changes that occurred in bilateral relations between Russia and Austria in the period before and after the start of the military invasion of Ukraine in February 2014. Austria, as the subject of the study, was chosen because of its peculiarities as a perpetually neutral country and state - member of the European Union. The country to shape its bilateral relations with Russia in a particular way, which has changed since the beginning of military operations in Ukraine. Methods The analysis and synthesis of knowledge, the case study method, the hard and soft power theory of Joseph Nye, a method of observing current political and military events. Results 1. Until the conflict with Ukraine, which took the form of war in February 2022, relations between Russia and Austria were friendly, based on mutual benefits. 2. The Austrian government to take an unambiguous stance towards the conflict and to stand in solidarity with other EU countries. 3. The bilateral relations to rapidly weaken and deteriorate, which can be seen in the public statements of Russian politicians. Conclusions Austria played a special role in bilateral and multilateral contacts in the international environment. Russian sought to influence Austria through diplomatic, informational and economic means. By publicly condemning the armed invasion in Ukraine and accepting the sanctions imposed on Russia by EU countries, Austria received a harsh reaction from Russia in the diplomatic forum. In the long run, this may dramatically change the arrangement of mutual relations between the two countries.
... state-owner. The Russian Government has several reasons to exercise direct control over companies. For instance, the firms involved in military production are controlled by the State for the goal of maintaining the secrecy of technologies.Furthermore, the Russian State uses control in the oil and gas industry for international relations' tensions.Newnham (2011) andJirušek (2018) argue that the Russian Government widely uses state-controlled oil & gas exporting companies for political pressure on foreign countries by imposing a higher or lower price. Therefore, I assume that control is the primary goal of the Russian Government.The Russian State executes direct control in companies from various ind ...
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The thesis investigates the relationship between the ownership structure and the financial performance of publicly-listed firms in Russia. The 2015-2018 average values of market-to-book equity ratio (M/B) and return on assets (ROA) are used for evaluation of the firm’s performance. Furthermore, 2014 values for managerial and state shareholdings are employed for measuring the ownership structure of the company. To my knowledge, no paper has examined the relationship between managerial shareholdings and performance of Russian firms both on individual firm and portfolio levels. Using single and two-stage least squares regressions, I find a statistically significant negative impact of both managerial and state shareholdings on the strategic performance (measured by M/B) of the firms. While the negative influence of state shareholdings on strategic performance is anticipated and supported by literature, the negative effect of managerial ownership is unexpected. At the same time, I conclude no impact of both managerial and state ownership on operational efficiency (measured by ROA) of the firm. I also employ a portfolio approach to examine the relationship between state ownership and performance measured by stock returns. I compare average monthly returns and total returns across the industries and M/B. Based on the portfolio approach, I cannot conclude that publicly-listed firms without state-owners perform significantly different from state-controlled entities.
Scholars of international relations disagree whether trade in natural gas between Europe and Russia provides the latter with a source of foreign policy power. Because a reduction in trade of natural gas is costly for importers, the potential economic power of Russia's energy weapon could alter strategic calculations about diplomatic conflict with Russia. Consequently, we hypothesize that increases in dependence on Russian natural gas will lead to more foreign policy convergence with Russia. Using a panel of European states from 1995 to 2013 and a time series of Germany from 1979 to 2013, we find support for our argument that greater dependence on Russian natural gas correlates with more similarity in voting patterns at the United Nations General Assembly. Our research suggests that Russian natural gas imports to Europe shape broader political alignments, adding to the growing body of research on the potential ramifications of Russia's energy weapon.
Subject. This article explores the advantages of the Russian-Turkish strategic partnership based on mutual interest in building up economic and geopolitical potentials. Objectives. The article aims to describe the stages of implementation of investment cooperation between Russia and Turkey in various sectors of the economy and predict the prospects for investment cooperation between these countries. Methods. For the study, based on the review of materials of foreign and Russian experts in the field of international economics, finance, investment deposits, and reporting documents of statistical institutions, I used the historical method, observation, and generalization. Results. The article structures the factors affecting the changes in the bilateral investment cooperation between Russia and Turkey, and identifies investment risks that impede efficient cooperation in the long term. Conclusions. It is necessary to enhance efforts in the field of bilateral partnership, as well as diversification of the Russian economy key sectors.
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Existing studies have scrutinized the rise of states as global owners and investors, yet we still lack a good understanding of what state investment does in a globalized economy, especially in host states. Comparative capitalisms research has analyzed foreign state investment as a potential source of patient capital for coordinated and mixed-market economies. However, this patient capital framework cannot explain the recent surge of protectionist sentiments, even among the “good hosts” of state-led investment. Therefore, we go beyond the patient capital argument and develop a novel framework centered on the globalized nature of foreign state investment. We create and empirically illustrate a novel typology based on different modes of cross-border state investment—from financial to strategic—and different categories of host states. Our results provide a new pathway to study the rise and effects of cross-border state investment in the 21st century.
This essay complements the other contributions to this special issue by placing Russia’s neighbourhood policy into a broader temporal and theoretical perspective. It shows that Russia’s political elite during the last three decades has been largely united behind the goal of establishing a Moscow-centred regional security order. Yet, despite this broad-based consensus, Russia’s policy in the former Soviet area has varied markedly across time and space. To account for this pattern, the essay develops and tests a neoclassical realist approach that explains why, how and when major powers such as Russia pursue regional primacy.
The deterioration of Russia’s trade and economic relations with international partners due to the aggravation of the geopolitical situation in Ukraine increases the importance of diversification of key sectors of the Russian economy. Russia’s search for new strategic partners increases the pace of cooperation with the Republic of Turkey. The subject of the study is the study of the advantages of the Russian-Turkish strategic partnership, the basis of which is mutual interest in building up economic and geopolitical potential. The key objectives of the study will be to study the current investment climate, the stages of implementation of investment cooperation between Russia and Turkey in various sectors of the economy, analysis of the dynamics of foreign direct investment, mutual investment, trade turnover, exports and imports between the countries. Such research methods as observation, comparative analysis, generalization, historical method will be used in the work. The author will refer to the materials of Russian and foreign experts in the field of international economics, finance, investment deposits, statistical data on export, import, mutual turnover, foreign direct investment (FDI) between Russia and Turkey, obtained from the reporting documents of the Turkish Statistical Institute (TurkStat), the World Bank (The World Bank), the United Nations (UN), the Turkish Construction Union (Turkish Construction Union). The main result of the study will be the structuring of factors affecting the dynamics of bilateral investment cooperation. The results of the study can be useful to representatives of business organizations, business owners and managers, specialists in the field of economics and finance. Formulating the main conclusions of the study, the author notes the priority of mutually beneficial Russian-Turkish partnership on key economic issues
A paucity of data has thus far made systematic comparative analysis of emerging bilateral creditors a major challenge. In this study I take advantage of new World Bank data on the sovereign creditors of low- and middle-income countries to map the distribution of lending from the key emerging bilateral official creditors during the 21st century, focusing on the BRICs (Brazil, Russia, India, and China). I then statistically analyze the political and economic factors that drive BRICs’ lending and investigate whether their motivations and terms are different from each other and from “traditional” creditors. The results suggest that concerns about the BRICs using bilateral credit as a foreign policy tool may be overblown. Instead, BRICs official loan commitments are driven by their trading ties with borrowers, and are complements to rather than substitutes for traditional lenders. However, the results also show that countries which borrow proportionately more from the BRICs face significantly less concessional terms on their official external debts compared to borrowing from traditional OECD lenders. Given the growing importance of emerging bilateral creditors, systematic comparative understanding of their motives and behavior has substantial policy relevance, in particular amid COVID-19 induced economic distress across much of the developing world.
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'. . . a timely review of the sometime triumphs and repeated failures of Russian oil industry planning. As this comprehensive volume makes clear, the interaction between Russia and global oil markets has often been critical. Over the last century, Russia has played a leading role in oil economics, and as the authors demonstrate, Russia's untamed power may yet bring turmoil to western oil companies and middle-eastern governments. Despite the spottiness of economic reforms in the 1990s and the incomplete privatization of the oil industry described by Considine and Kerr, the ascendancy of Putin is leading to another surge in Russian oil exports and OPEC's effort to stabilize prices appears to hang in the balance. the Russian Oil Economy is one of the few studies that puts these events into perspective while offering insights into the outcome.' - Adam Siemenski, Deutsche Bank Securities,
By 1998 the major steps in the transformation of the Russian economy from state ownership and administrative control to private ownership and market relations were completed. Although the structures and process of state socialism still leave an imprint, the principal political contest has been between groups with different interests about the type of market economy being constructed in Russia and the relative role of different political and economic institutions-the state, investors, management, and financial interests (including foreign ones). The Russian oil industry has to be analyzed in the context of international, regional, and sectoral interests that seek to influence the government. This chapter considers the ways in which the oil industry has relatively successfully adapted to a world market economy, examining divisions within the industry between management and financial interests, and disagreements within the ruling political apparatus about the extent and type of regulation and control. It then outlines the main forms of interest articulation. Lastly, it arrives at several generalizations about the Russian model of capitalism.
Thanks to a steady increase in oil output in recent years, Russia is now poised to displace Saudi Arabia as the key energy supplier to the West. But the kingdom has not welcomed Russia's gain. The emerging contest for oil dominance between Russia and Saudi Arabia will profoundly affect U.S. energy security, Russia's global role, Saudi power, and the Organization of Petroleum Exporting Countries, not to mention the global economy.