Russia's superpower strategy runs out of gas
By Andrei P Tsygankov
The global economic crisis has prompted some observers to speculate that Russia
has little choice but to abandon its international assertiveness in favor of
re-engaging the West and diversifying its energy-dependent economy.
The Russian leadership, however, has shown little inclination to principally
revise its international strategy and its petro component. The Kremlin assumes
that the alternative to its energy-based strategy is a decline relative to
existing and rising powers, which will lead to the degeneration of Russia into
a geographically truncated, under-populated and resource-depleted
nation that accepts political demands from others.
That Russia is in a state of relative decline is obvious to everyone who has
compared its demographic, economic and military indicators to those of the US,
China and India. Since the end of the Cold War, Russia has lost about 15 years,
while the rest of the world continues to move forward.
Although Russia has restored some of its positions, it is lagging behind in
others including industrial growth, military defense, internal security and
human development. The Russian population continues to shrink, infrastructure
is deteriorating, the military lacks proper training and the overall level of
social confidence remains high due only to the positive dynamics of the last
five to seven years.
The government understands that the only way out of its progressive power
differential situation is to fully exploit the comparative advantage of
Russia's energy reserves. Already in 1997, while working for the governor of St
Petersburg, Vladimir Putin wrote in his doctoral thesis about the critical
importance of oil and gas to preserve Russia's great power status within the
next 50 years. The Kremlin believes that building up the capacity to shape
global energy markets is not a luxury, but a necessity.
Achieving the objective of becoming an energy superpower is difficult for at
least two reasons. First, Russia cannot do it alone and needs Western
investments and expertise to develop its lucrative energy fields, such as
Shtokman, and build diverse transportation networks, most importantly northern
and southern pipelines. Second, the world's development trends are such that
Russia doesn't have much time - a generation at the most - to catch up with its
powerful neighbors in economic, military and social terms.
All efforts by the Kremlin to gain controlling stakes in energy companies, sign
more contracts and increase the capitalization of Russia's energy giants, such
as Gasprom and Rosneft, have taken place with larger strategic objectives in
mind. For example, Gasprom's market capitalization was expected to reach US$1
trillion by 2014, turning it into the world's largest company based on market
value, surpassing ExxonMobil. Russia also has coordinated its policies with
those of other energy producers in the Middle East and Northern Africa and
signed multiple contracts for developing energy capabilities in Latin America.
The idea is to develop a capacity to shape world markets first and only then to
become serious about diversifying its economy. Russia needs to attract
sufficient investments for its energy projects. Then it wants to develop energy
fields and build the northern and southern pipelines that are scheduled to
become operational in 2011 and 2014, respectively. Only after generating
sufficient resources for a great power recovery will the government diversify
the economy. The intention has been to diversify by 2020 - perhaps too
optimistic, even by pre-crisis standards.
The global economic crisis has, of course, changed the Kremlin's calculations.
Its plan to become an energy superpower has suffered important setbacks.
Gasprom's market value is now 10 times lower than it was several months ago,
while ExxonMobil has generally survived the investment crash. In addition, both
Gasprom and Rosneft have became heavily indebted to foreign companies and are
desperate to borrow again - this time for debt restructuring purposes. The
recent Russia-Ukraine gas crisis has also revealed that Gasprom, which now pays
a higher price to Central Asian producers, may no longer have the luxury not to
raise prices for Ukraine and those still subsidized by Russia.
Nobody really knows how deep the world economic crisis will be, how seriously
it may still hurt Russia and how much time it will take Russia to get back on
its feet. But one thing seems certain: its leadership has no other strategy to
help it recover its great power status and capabilities. The Kremlin has few
other options than to preserve its model's principal petro-components, modify
them by learning lessons from the crisis and hope for another opportunity to
apply the model within the next five years or so.
Andrei P Tsygankov, Professor, International Relations/Political Science,
San Francisco State University.
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