Gazprom CEO Alexei Miller and Russian Prime Minister Vladimir V. Putin
Russia Blog contributor Professor Andrei P. Tsygankov sends along his latest article, published in the Asia Times newspaper. Prof. Tsygankov writes that although Russia is justified in seeking higher prices from countries like Ukraine that have based much of their recent economic growth on cheap subsidized Russian gas, the Kremlin has pinned far too much of its hopes for future development on the oil and gas industry.
While this type of criticism is quite commonplace in the West, Tsygankov, like his fellow Asia Times contributor "Spengler", realizes that the time is short. If Russia (and for that matter, Ukraine and Georgia, which are in even worse demographic shape) want to turn things around and avoid their societies being cut in half, they have to do it within a generation.
Click on the extended post to read this excellent Asia Times article.
A United Nations projection of Russian population trends based on recent mortality and birth rate statistics (Source: The Asia Times' columnist "Spengler"). While many of Russia's critics can point to this data to claim that Russia is declining in the long term, the allegedly more "Free" and "Pro-Western" countries Ukraine and Georgia are in an even worse demographic decline, in large part due to emigration.
Over one million Georgians already choose to live and work in the Russian Federation, and the proposed European Union membership for Ukraine and Georgia may accelerate the brain and baby drain of talented workers -- as well as brides and mothers -- headed West. Nonetheless, without a significant demographic resurgence in Russia, it is difficult to envision how these former Soviet republics can avoid shrinking by more than half by the end of the 21st century. For more information on this topics, check out "Russia's Declining Population: Who Do You Want to Blame?" (July 2007)
- The Editors
Russia's Superpower Strategy Runs Out of Gas
By Andrei P. Tsygankov
Asia Times, January 17, 2009
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 U.S., 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 Gazprom and Rosneft, have taken place with larger strategic objectives in mind. For example, Gazprom'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. Gazprom'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 Gazprom 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 Gazprom, 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 is a Professor of International Relations and Political Science at San Francisco State University in California.
For more on this topic, check out "Russia's Economic Crisis Could Have Been Avoided" by Yuri Mamchur in The Seattle Times.