Who owns it?

Tony Wood

  • Wheel of Fortune: The Battle for Oil and Power in Russia by Thane Gustafson
    Harvard, 662 pp, £20.95, November 2012, ISBN 978 0 674 06647 2

There is no shortage of turning points in Russia’s 20th-century history, from the October Revolution of 1917 to the German defeat at Stalingrad in February 1943, to the overnight disappearance of the Soviet Union at the end of 1991. But as well as these obviously pivotal moments, there are other, hidden hinges of the country’s fate. Geologists had long suspected that the ground deep beneath the swampy middle reaches of the Ob River might contain oil, and an initial expedition in 1959 found a petroleum reservoir near the village of Shaim. In early June 1960, Well R-6 was sunk; after 18 days of drilling to a depth of 1500 metres, it began to spew forth oil at a rate of 400-500 tons a day – the first industrial-scale find in Siberia. Success at Shaim set off a feverish burst of exploration, and more than two dozen fields were found in the area over the next four years. The biggest single discovery in the history of Russian oil was made in May 1965: the super-giant Samotlor field, at its peak in the 1980s the world’s second largest, and even now among the top half-dozen, producing more than 35 million tons of crude a year.

West Siberian oil quickly came to play a central role in the Soviet economy. There had been oil booms in Russia and the USSR before: Baku’s wells enabled the tsarist empire briefly to overtake the US as the world’s leading producer at the turn of the 20th century. After the Second World War the oil sector’s centre of gravity shifted to the fields along the Volga, but the Siberian discoveries were of a different order: their sheer scale meant that by 1975 the region accounted for almost a third of Soviet oil production; by 1980 more than half the USSR’s oil came from the Ob basin. The historical significance of these finds didn’t derive from their size alone: they turned the USSR into a major exporter just before global oil prices spiked with the crisis of 1973, giving the Soviet leadership vastly increased revenues. The flood of oil money arrived as the country’s massive industrial base had begun to stagnate, helping to compensate for – and mask – slowing productivity across the rest of the economy. Energy resources gradually came to predominate among Soviet exports, rising from 16 per cent in 1970 to 47 per cent in 1987. Ministers squeezed the oil industry for more crude to cover other shortages: one Russian oilman reported getting a phone call from the premier: ‘We’re short of bread,’ he said – ‘give us three million tons of oil above the plan.’

Oil exports were a bulwark of Brezhnevism, but they turned into the Soviet Union’s Achilles’ heel. In 1986, world oil prices dropped from close to $30 per barrel to less than $10, leading to serious problems for the Kremlin’s finances. Gorbachev’s government was forced to borrow heavily in order to import food, and industrial investment shrank , which further depressed output. This spiral of debt was an important factor in the escalating economic crisis of the USSR’s final years. It’s an interesting irony that the vagaries of a capitalist commodity market should have contributed to Communism’s ultimate downfall.

After the disintegration of the Soviet Union oil output slumped drastically from a peak of 570 million tons in 1987 to a low of 303 million in 1996 – a 47 per cent drop. Today Russia is an energy superpower again, second only to Saudi Arabia in levels of oil production: in 2011, it accounted for 13 per cent of world output, and 12 per cent of proven reserves outside the Middle East. What happened? Thane Gustafson’s Wheel of Fortune is the fullest account so far of Russian oil in the 1990s and 2000s. Gustafson, who is now based at Georgetown University, was for a time an analyst at the Rand Corporation and spent 15 years researching Russian oil at Cambridge Energy Associates. In 1989 he published Crisis amid Plenty, on Soviet energy policy under Brezhnev and Gorbachev; Wheel of Fortune is ‘in basic respects a sequel’ to that volume, built on an impressive grasp of the way the Russian oil industry works. But its arguments also have a wider relevance for understanding the country’s post-Soviet fortunes.

Gustafson’s main contention is that the events of the 1990s and 2000s – crooked privatisations and the rise of the oligarchs under Yeltsin, the re-emergence of state corporations and the dismemberment of Yukos under Putin – were part of a traumatic weakening of state capacity after 1991, followed by a recovery in the new century. Oil has been the key battleground in the contest between state power and private wealth, and a crucial resource for the reassertion of state prerogatives, thanks to high global prices between 1999 and 2008. In Gustafson’s telling, the oil sector offers a typical example of the way Russian capitalism took shape through a combination of adaptation, improvisation and compromise with the remains of the Soviet system.

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