Black Gold's Curse:Crumbling Empire

The Scenario

Crumbling Empire

The Myth

Greed: People’s inability to think about the future and their concern with money and power leads to a fragmented Russia with powerful regional leaders fighting among themselves for control of resources. Russia as a country or an idea ceases to exist.

Relatively small market (few people); not a particularly wealthy market; not a technologically advanced market; therefore not an attractive market.

Oil price remains relatively high and stable.

Timeline

Period of 2010 - 2020

In 2012 current Russian President Dimitry Medvedev runs again for the presidency. His United Russia Party is by far the largest political party in Russia and Medvedev wins by a landslide. Having said that, the opposition parties managed to improve their positions by gaining 15% (Communist Party of the Russian Federation) and 8% (Liberal Democratic Party) of the vote, respectively. Though the opposition parties are still unable to influence policy or legislation in any significant manner, their improved showing is believed to evidence increased popular discontent with Putin and Medvedev.

Medvedev is able to alter Russia’s constitution, allowing presidential candidates to serve 4 consecutive terms.

Although United Russia is still a dominant, unitary force in Russian politics, evidence of internal tensions is becoming increasingly visible. Putin remains strong and influential from his position as prime minister. Putin and Medvedev share power and responsibility much as they have for years however it is widely believed that Medvedev has succeeded in cementing his position despite Putin’s desire to remove him once he has served his usefulness. Each leader has his supporters within United Russia and amongst the siloviki (oligarchs). There has been increasing competition between these and other groups in recent years, especially for control of oil and gas resources which are by far the greatest sources of revenue for the Russian government

Oil and gas prices have been high and relatively stable for a number of years, buoyed by growing global demand. A number of factors contribute to keeping prices high: (a) rapid economic growth and rising standards of living in developing countries, principally India and China, (b) relatively slow progress on the development of energy efficient and alternative energy technologies, and (c) lack of international agreement and coordination on energy and environmental policies. The high prices ensure that, despite the notorious inefficiency of Russia’s oil and gas infrastructure, the Russian government still receives steady revenues and accumulates massive foreign reserves.

It has been widely known for decades that Russia’s infrastructure has been in dire need of upgrading. Roads, schools, hospitals, etc. were all in bad shape. Even the energy infrastructure, from hydroelectric dams to oil refineries, were outdated and inefficient. United Russia made the improvement of infrastructure and the raising standards of living for average Russians, central pillars of the presidential election campaign. Yet, despite the fact that Russian government coffers have been filled to overflowing, by 2015 there has been little improvement in energy, transportation, health or education infrastructure.

Due to the expectation throughout Russian government and business that future oil revenues would remain high there is no sense of urgency with respect to making the necessary investments in infrastructure, health, education, technology and military. In addition, an ineffective tax regime incentivizes Russian enterprises to invest in capital projects outside of Russia rather than inside. Those projects that did get underway, especially lucrative infrastructure projects, generally suffered from political infighting and corruption among the political and business elite, which diverted funds. In addition, since many political appointees were evaluated based on political allegiance rather than technical expertise and competence, the economy as a whole suffered from poor management. This is especially prevalent in the strategic resource sectors: oil, gas and mining. All of the above factors combined to cause some high profile project delays and failures, such as the Nord Stream pipeline project under the Baltic Sea to Germany. Originally slated for completion in 2011, the project fails due to corruption and inefficient use of funds, the German/Dutch consortium of companies back out of the deal in 2014 leaving the project incomplete.

In terms of foreign policy Russia continues to behave in an unpredictable and contradictory way. It fails to develop and real and consistent policy towards the US or the EU. Medvedev’s proposal for new European security architecture in 2010 receives a lukewarm response from the EU due to a lack of new ideas and a lack of a workable plan on how to take Medvedev’s ideas forward. Russia plays a game of anti EU and anti US policy by trying to criticize and derail major proposals without providing any workable solutions of their own. Due to this behavior they are seen as increasingly unstable and untrustworthy by both the US and EU. Russia’s political dominance begins to wane.

In 2018, Medvedev’s United Russia wins with 52% of the vote. The political landscape looks similar to 2012 although the Communists have lost a considerable amount of support as the ageing pre-Soviet population begins to decline. There is a larger than ever number of non-voters as people are more and more disillusioned by the government and corruption.