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Wheel of Fortune: The Battle for Oil and Power in Russia
The Russian oil industry—which vies with Saudi Arabia as the world’s largest producer and exporter of oil, providing nearly 12 percent of the global supply—is facing mounting problems that could send shock waves through the Russian economy and worldwide. Wheel of Fortune provides an authoritative account of this vital industry from the last years of communism to its uncertain future. Tracking the interdependence among Russia’s oil industry, politics, and economy, Thane Gustafson shows how the stakes extend beyond international energy security to include the potential threat of a destabilized Russia.
Gustafson, a leading consultant and analyst of the politics of energy in the former Soviet Union, draws on interviews with key players over the course of two decades to provide a detailed history of the oil industry’s evolution since the breakup of the Soviet Union. At its center is the complex and fraught relationship between the oil industry and the state, which loosened its grip under Yeltsin only to tighten it again under Putin. As oil becomes harder to find and more expensive to produce and deliver, Gustafson warns, Russia’s growing dependence on revenue from oil exports, along with its inefficient and often-corrupt management of the industry, is unsustainable.
A rich but troubled Soviet legacy, the conflicting ambitions of politicians and industry oligarchs, and the excesses of capitalism Russian-style threaten to lead Russia to an impasse. Involving the oil industry in the country’s modernization agenda and remaking its relationship to the state, Gustafson argues, is Russia’s best path toward a stable economy and a safer world.
Gustafson, a leading consultant and analyst of the politics of energy in the former Soviet Union, draws on interviews with key players over the course of two decades to provide a detailed history of the oil industry’s evolution since the breakup of the Soviet Union. At its center is the complex and fraught relationship between the oil industry and the state, which loosened its grip under Yeltsin only to tighten it again under Putin. As oil becomes harder to find and more expensive to produce and deliver, Gustafson warns, Russia’s growing dependence on revenue from oil exports, along with its inefficient and often-corrupt management of the industry, is unsustainable.
A rich but troubled Soviet legacy, the conflicting ambitions of politicians and industry oligarchs, and the excesses of capitalism Russian-style threaten to lead Russia to an impasse. Involving the oil industry in the country’s modernization agenda and remaking its relationship to the state, Gustafson argues, is Russia’s best path toward a stable economy and a safer world.
672 pages, Hardcover
First published November 6, 2012
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About the author
Thane Gustafson
21 books16 followersThane Gustafson is Professor of Government at Georgetown University and Executive Director of IHS Markit. His books include Crisis amid Plenty: The Politics of Soviet Energy under Brezhnev and Gorbachev, Capitalism Russian-Style, and Wheel of Fortune: The Battle for Oil and Power in Russia.
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Displaying 1 - 10 of 10 reviews
October 9, 2017
"At the time of this writing (summer 2012) Russia appears to be settling in for a third term under Putin (this time for six years), until the next scheduled election in 2018, when - according to the letter of the Constitution - Putin could run yet again.
It will not be as easy the next time around. By 2018 Putin will have been president for fourteen years and the de facto head of the country for nearly nineteen. The opposition will be better organized, and given the rapid spread of the Internet and social networking in Russia, it will have gained strength and depth outside the capital. New leaders will have emerged, possibly from the regions, where political life is already showing signs of revival. They will find increased support from a population grown even more alienated than today by the perceived excesses of the favored elites. If the regime is showing signs of wear today, they will be all the greater by the end of the decade.
Yet so long as the Kremlin is able to retain the loyalty of the business and political elites and to support the welfare system on which the majority of the population depends, the system is likely to remain fundamentally stable. This, then, is the key question - how much longer can the flow of commodity rents support the elites' and the population's steadily growing expectations?
Seen from this perspective, the past decade was altogether anomalous. Between 2001 and 2011, the state budget grew ninefold and wages tripled (both in real terms), while trade surpluses totaled nearly $800 billion. What made this possible was a doubling of oil production and a quadrupling of oil prices, generating a tidal wave of rents, of which the state was able to capture the lion's share. That is not simply unlikely to happen again - it is impossible.
It is here that the political story and the oil story intersect. Sometime in the coming decade - just when is impossible to predict, because it hinges on so many variables - the flow of Russian oil rents could well decline, even as Russia's reliance on them grows. Even if world oil prices were to double again in the next decade (itself a doubtful proposition, as discussed), Russia's budget and trade balance surpluses will shrink, and the rising tide of money that enabled the Kremlin to meet everyone's rising expectations for a decade will vanish. Then, and only then, will the 'objective preconditions' (as the Russians like to say) for the end of the Putin era be present.
What will happen then? It does not follow that Russia will be thrown into crisis overnight. Thanks to a decade of prudent fiscal and monetary management, the government has plenty of room to borrow (external debt is currently an ultralow 15 percent of GDP). The ruble can be allowed to devaluate (which will curtail imports and make exports more competitive). Russia can spend from its foreign-currency reserves (at over $500 billion, they are the third largest in the world). Yet these are only expedients. Major spending programs will have to be cut back, including socially sensitive ones such as pensions and subsidies. The state's rainy-day funds will be depleted. Inflation will eat away the population's savings. The myth of endless prosperity, which has sustained the popularity and legitimacy of the present regime for so long, will erode.
In the midst of all this, the state will also be driven to confront head-on the difficult choice it has avoided since 2005, namely, the need to lessen its tax take from oil, so as to enable the oil industry to invest in the next generation of oil. What it was unwilling to do more than marginally in 2010-2011, it will be forced to do on a much larger scale after 2015 - when it will no longer have the comfortable surpluses is has today. In this and other ways, the politics of the expanding pie will give way to the much more painful politics of the shrinking one."
It will not be as easy the next time around. By 2018 Putin will have been president for fourteen years and the de facto head of the country for nearly nineteen. The opposition will be better organized, and given the rapid spread of the Internet and social networking in Russia, it will have gained strength and depth outside the capital. New leaders will have emerged, possibly from the regions, where political life is already showing signs of revival. They will find increased support from a population grown even more alienated than today by the perceived excesses of the favored elites. If the regime is showing signs of wear today, they will be all the greater by the end of the decade.
Yet so long as the Kremlin is able to retain the loyalty of the business and political elites and to support the welfare system on which the majority of the population depends, the system is likely to remain fundamentally stable. This, then, is the key question - how much longer can the flow of commodity rents support the elites' and the population's steadily growing expectations?
Seen from this perspective, the past decade was altogether anomalous. Between 2001 and 2011, the state budget grew ninefold and wages tripled (both in real terms), while trade surpluses totaled nearly $800 billion. What made this possible was a doubling of oil production and a quadrupling of oil prices, generating a tidal wave of rents, of which the state was able to capture the lion's share. That is not simply unlikely to happen again - it is impossible.
It is here that the political story and the oil story intersect. Sometime in the coming decade - just when is impossible to predict, because it hinges on so many variables - the flow of Russian oil rents could well decline, even as Russia's reliance on them grows. Even if world oil prices were to double again in the next decade (itself a doubtful proposition, as discussed), Russia's budget and trade balance surpluses will shrink, and the rising tide of money that enabled the Kremlin to meet everyone's rising expectations for a decade will vanish. Then, and only then, will the 'objective preconditions' (as the Russians like to say) for the end of the Putin era be present.
What will happen then? It does not follow that Russia will be thrown into crisis overnight. Thanks to a decade of prudent fiscal and monetary management, the government has plenty of room to borrow (external debt is currently an ultralow 15 percent of GDP). The ruble can be allowed to devaluate (which will curtail imports and make exports more competitive). Russia can spend from its foreign-currency reserves (at over $500 billion, they are the third largest in the world). Yet these are only expedients. Major spending programs will have to be cut back, including socially sensitive ones such as pensions and subsidies. The state's rainy-day funds will be depleted. Inflation will eat away the population's savings. The myth of endless prosperity, which has sustained the popularity and legitimacy of the present regime for so long, will erode.
In the midst of all this, the state will also be driven to confront head-on the difficult choice it has avoided since 2005, namely, the need to lessen its tax take from oil, so as to enable the oil industry to invest in the next generation of oil. What it was unwilling to do more than marginally in 2010-2011, it will be forced to do on a much larger scale after 2015 - when it will no longer have the comfortable surpluses is has today. In this and other ways, the politics of the expanding pie will give way to the much more painful politics of the shrinking one."
April 13, 2022
It's telling that Daniel Yergin comes in for special thanks in Gustafson's acknowledgements section, as this book feels like a version of "The Prize" that was more geographically and temporally bounded. This is meant as a compliment (I may no longer believe The Prize is the best book ever written, but it is still magisterial and something I will recommend to everyone I know). Gustafson has written an incredibly insightful history of the Russian oil industry, that is clearly very well sourced and goes into great depth (there is probably more than I need but I found it all interesting). There's a bit too much recapitulation of the book's insights in the last two chapters (which could probably have been a single chapter, honestly), but this book is packed full of details and insights about the oil industry; how it ties into the Russian state, economy, and society; and how the industry and the country came to be so entangled. It also explains how this has hampered innovation, investment, and openness to foreign companies, tracking multiple threads over decades to explain a unique market and its players.
March 13, 2018
Review TBA
April 4, 2021
An intricately convoluted subject made approachable to the uninitiated by a natural, readable style; but the reader must start with a sincere interest in the oil and gas industry in Russia.
January 5, 2014
Most people might not expect a book on the recent history of post-Soviet Russian oil business to be a real page-turner, especially not one over 600 pages long, but this book is just that. Well-written with a true expert voice by Dr. Thane Gustafson (a professor of governmental studies but has long had an emphasis in his research on Russian oil exploration, production, and policy), this book looks at how the Russian oil industry recovered from the fall of the Soviet Union, opened itself to private investment and outside collaboration, and experienced a multitude of ups and downs all along the way. Dr. Gustafson's acumen in this area—and his access to key figures for interviews—are one aspect that make the book worthwhile but he's also a talented storyteller and is able to keep the narrative moving along by introducing the colorful characters of oligarchs and oil barons, former government ministers and engineers in the storm of a changing Russia. All these folks are/were real people and in many ways, their story of post-Soviet industry will leave you wondering aloud how in the world one of the greatest oil-producing powers the earth has ever seen became such a circus for over a decade. I highly recommend it to all interested in post-Soviet economies, the oil business in general, or Russian business/politics.
December 8, 2012
Anxiously looking forward to read this book. A brief glance into the book through the Foreign Affairs magazine's article got me really interested. This book is from a PoliSci Professor at Georgetown University and a great expert on Russia's huge oil and gas industry. And is about the past, present and more importantly about future of giant hydrocarbon rich Euroasian state!! Russia's unique relationship with the oil and gas, its role in shaping of state's foreign and domestic policies.
April 4, 2024
Given the outsized importance of the energy industry to the Russian economy, this book is a must read for those interested in gaining a full understanding of Russian domestic politics, geopolitical decision making and the effects of market liberalization.
December 23, 2013
Great overview of the post-Soviet energy industries, with an emphasis on oil. Comprehensive, but often reads like shorter essays stitched together into a book.
December 24, 2016
The best book on geopolitics of post-Soviet Russia I've read. A must read for anyone doing business in emerging markets.
November 12, 2013
Excellent book about big oil, communists, and the rule of law. Kind of scary, actually.
Displaying 1 - 10 of 10 reviews