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.
Period of 2020 - 2025
In effect, Russia is not able to extract maximum value from its resources because it lacks the technical expertise, organizational skills and political will to do so. For example, it does not have sufficient refining capacity and derives much of its export revenue from exporting crude oil. The value that Russia does obtain from exports of its resources are inefficiently applied to the needs of the country. As a result health and education are stagnant and infrastructure gradually deteriorating.
The military, which is seen as essential to the protection of Russian resources and pipelines, to the maintenance of the regional integrity of the country, and to the assertion of Russian integrity in the arctic, receives gradual funding increases and is modernized. Conscription is ended, salaries are raised, the forces are downsized, training is intensified and hardware is upgraded. The military is deployed from time to time to bring back into line ambitions regional leaders or to quell insurgencies. It must be said however that corruption is not dealt with effectively and the old problem of dedovshina (hazing) continues. Overall, the military is better prepared and equipped than in 2010 however it is far from the force that it used to be during the Soviet Union. Little investment is made into maintenance of nuclear warheads and their delivery systems. Although Russia still has the largest amount of tactical and long range nuclear warheads in the world, the amount that can be deployed is decreased dramatically.
The Caucasus remains unstable and the Russian military maintains a heavy presence there for decades. Despite maintaining military control over the region, standards of living steadily deteriorate due to persistent conflict, low economic activity and lack of governance. This results in a drift of the local population towards increasing Islamic extremism. This steadily infects and gains support from sympathetic Muslim ethnic groups in neighboring regions in the Caucasus and south Urals and Central Asia.
The increasing use of the Russian military to enforce Kremlin policy in restive regions reflects Russia’s decreasing ability to project its soft power. Ukraine has started to lean progressively westward after seeing the economic success of the booming Polish and Slovak economies. This inevitably increases tensions between Kiev and Moscow. Emboldened by the fact that it was difficult for Russia cut off gas supplies to Ukraine without affecting supply to the EU, in 2017 Ukraine initially refused to renew the Russian navy’s lease to use the port at Sevastopol. After tense negotiations the Ukrainians relented and agreed to a five year extension. In 2022 Ukraine steadfastly refuses to continue the lease and forces Black Sea Fleet to relocate to other smaller Black Sea ports and to be reassigned to other regions. Although Russia attempts to pressure Ukraine by supporting ethnic Russian opposition and using the FSB to intimidate key figures in the Ukrainian government, the effect is limited as key Russian pipelines to Europe still run through Ukraine. Ukraine retaliates by threatening to destroy major pipeline infrastructure and siphon oil and gas. Russia capitulates and removes its Black Sea Fleet from Sevastopol. This essentially ends Russian military presence in the region as well as contributing to a decline in Russia’s influence there.
All efforts aimed at creating a sphere of influence over its Slavic neighbors seem to be ineffectual and with a major loss of influence in Sevastopol Russia’s soft power and ability to influence former Soviet and Slavic states seems to be waning.
The military is also absorbed in supporting the armed forces of the “stans” in order to maintain the integrity of their borders against the persistent conflict in Afghanistan and Pakistan.
Moscow has managed to successfully, through tax breaks and generous family subsidies, to slow population decline. Although the number of babies being born has increased substantially, they will not join the workforce for at least two decades.
Inequality, both regional and social, reaches new highs. There are more Russian millionaires than ever before, however, there are also more Russians living in poverty than at ever before. The disparity is greatest in regions rich in oil and gas, whereas regions without oil or gas tend to simply be poor. In particular, wealth is concentrated in Moscow, which maintains for years on end its position as the most expensive city in the world.
In 2024, Medvedev’s United Russia claims another victory this time with a majority of 40%. 30% of the population do not vote in the elections and the remaining 30% is split between the communist party, a number of small liberal democratic parties and ultra nationalist right wing parties.