This paper analyzes how natural resourceshave helped Russia economically and politically. Russia has gone through manysignificant changes since the collapse of the Soviet Union. Oil and natural gashas provided Russia with many new opportunities of business however, Russiafaces many challenges of the sudden price changes in oil and structurallimitation. Russia has gone throughmany significant changes since the collapse of the Soviet Union. Today, Russiais one of the world’s leading producers of oil and natural gas (Buneman, 2009).
Oil and natural gas has brought Russia economic and political gain. After therise in prices of natural gases for much of this decade, Russia’s economyprofited from petrodollars and increased exports. Russia’s control of theexisting pipeline distribution network allowed the country to be in a positionas a major supplier for neighboring countries and gain political power. An increaseddemand for oil and natural gas from Asia and Europe has created a new opportunityfor greater profits. However, Russia faces a challenge of falling oil pricesand new pipelines. Opportunities arise from both greater demands in theincreasingly profitable European markets as well as the emerging Asianeconomies seeking to access Russia’s pipelines. However, the recent decline ofoil and gas prices threatens Russia’s future prosperity and Europe’s fears ofbecoming dependent on Russian gas have created the idea of new pipelines thatavoids being dependent on Russia altogether.
Oil and natural gasexports have been one of Russia’s staples for decades. However, during theyears leading up to the collapse of the Soviet Union, production fell sharply(Drum, 2011). After the financial crisis and the collapse of the ruble, Russiabecame one of the largest contenders on the world oil markets due to anincrease in both foreign and domestic investment.
Foreign companies like ExxonMobil and domestic firms like LUKOil has worked on improving the pipelinenetworks, infrastructure, and drilling technology (Krauss, 2012). Theinvestment by these foreign and domestic companies has allowed Russia to profitdomestically and internationally from exports. Additionally, the invasion ofIraq by the United States sent the world price of crude oil to historic levels(Ahmed, 2014). The combination of investments by domestic and foreigncompanies, increased export capacity and volume, and record-setting oil priceshas fueled Russia’s economic expansion. Although oil may be oneof the staples in Russia’s economy, it faces many problems. These problemsinclude low labor productivity, high production costs, and accessibilityissues.
On top of these issues, in the long run, Russia cannot compete withOPEC’s production capacity and reserves (OPEC v Russia, 2001). Russia mustinstead focus on natural gas, as it’s true advantage lies there. Russia is theworld’s largest exporter of natural gas and its reserves (Duddu, 2013).
Key to this competitiveadvantage in natural gas is Gazprom, the largest gas company in Russia (OAOGazprom). Gazprom is a government owned company with over fifty percent of itsshares owned by the government. This gives the Russian government the power toset gas prices and establish long term contracts with foreign buyers, making itthe largest earner of “petrodollars”. Gazprom is also one of the largest sourcesof revenue for the government. Twenty four percent of Russia’s budget has beencreated through Gazprom’s revenue (OAO Gazprom). The economy has averaged 7% ofgrowth during 1928-2008 as oil prices rose rapidly.
Russia since thecollapse of USSR had found a new economic growth since then, by being aposition as a main supplier of gas and oil for neighboring countries. Theformer soviet country borders fourteen countries (Buneman, 2009). With Russiabordering between fourteen countries, their gas distribution networks runs fromthe Caspian Sea to North Russia, Asia to Europe. Currently Russia’s Druzhba Pipeline,the largest in the country, runs from south Russia where it collects from theCaspian Sea and the Ural Mountains, through Ukraine and to central Europe andGermany (Simopt). Gazprom’s exclusive control of this network, has allowedRussia to gain a significant amount of control over the supply of gas to Europeand Central Asia.Moreover, Russia is asole provider of gas for Belarus, Bulgaria, Estonia, Ukraine, Slovakia, etc. In2004, over ninety percent of Russia’s seven trillion cubic feet of gas exportedwent to European countries (Gelb).
This control of the flow and direction ofoil and gas to Europe and central Asia has allowed Russia a significant amountof political power. In adittion to a significant amount of political power, Russia’sability to dictate gas prices in the form of long-term contracts with othercountries has given it a political advantage in international relations.