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 - 2015
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.
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 and technology. 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 2010, it only begins operation in 2014 and is massively over-budget.