Marshall Goldman - Petrostate - Putin, Power, and the New Russia

These are not easy problems to overcome. For that matter, Russia has never really been competitive in world markets. Certainly Russia has much to be proud of when it comes to advances in space and military technology. But almost all of these achievements are the result of a hothouse artificial environment where the Russian government has subsidized such developments through its military and space budgets. (The same can be said about the space and defense sectors in the United States.) Nevertheless, there is only so much that government underpricing and support can achieve at a time when an economic downturn has enveloped most of the countries of the world. As demand declines, energy prices fall. Even if the Russians offer to export their goods at a more competitive price, a recession, as in 2009, takes a heavy toll not only on the world’s buyers but on its sellers. As a result, even if Russian exporters lower their prices, potential foreign purchasers who might normally be interested in buying goods from Russia almost certainly will be forced to cut back on their consumption. Moreover, competing exporters will also cut their prices. That is why even in a recession, demand for Russian products including oil and gas is also likely to suffer.

What impact have these economic developments had on the Russian political scene? It was Vladimir Putin’s good fortune to be appointed prime minister in late 1999, near the end of Boris Yeltsin’s tenure as president at what turned out to be an economic low point. Beginning a few months later in 2000, however, the Russian economy began to grow an average of 7–8 percent a year until 2009, which just happened to coincide with the end of Putin’s tenure in office as president. As a result many Russian voters credit Russia’s decade-long economic prosperity to Putin’s actions as president. In reality, it is due as much as anything to the increase of world energy prices, which began in 1999 and continued until late 2008, just after Putin stepped aside as president and appointed Dmitri Medvedev as his successor. No wonder many Russians associate the sudden deterioration in Russia’s economic fortunes with Medvedev’s assumption of the presidency. In fact, Medvedev had no more to do with the drop in oil prices than Putin had do with their increase a decade earlier. If Medvedev is to be successful, he must win popular support. But unless the world recession comes to a quick end, he will have difficulty doing so as long as energy prices remain low and thus unable to boost Russia’s economic fortunes. This is a problem that Putin did not have to face. In a major way, then, the world price of energy has become a significant factor in determining the success or failure of Russia’s political leaders, an intriguing interplay of economics and politics.

More than in my past writing efforts, I owe thanks to a set of enthusiastic helpers. They provided invaluable help in preparing my manuscript. Two of them have the ability to read my handwriting, something I am not always able to do myself. Doing my best to ignore the advances of the modern computerized world, I prefer to write out the text in longhand on legal-size yellow pads. Robert Price was able to transcribe those writings for me onto a computer, so I was devastated when he went to work at a higher calling. To my relief Sue Sypko took over and proved to be as able, and, equally important, she hasn’t frowned when I bring her yet another set of nearly incomprehensive scribbles. In fact, I have taken to awarding her Stakhanovite prizes for her efforts. The third member is Coco Downey, who offered herself as research assistant and eagerly agreed to chase after obscure facts and display them in a way that aids the understanding of how things work in Russia. I have come to call her “the wizard.” After reading her charts and diagrams in the chapters that follow, I suspect the readers, even those in Russia, will agree that they can now understand the previously incomprehensible. The fourth and most unlikely member of this quartet is Thomas Luly, a most amazing high school junior. Out of the blue he wrote an e-mail asking if I needed any assistance. To humor him, I sent him an early draft of the manuscript and to my amazement, he not only read the whole thing and made extensive notes, but he found more inconsistencies in the text than I am embarrassed to admit should have been there. He also asked some probing questions that should help both me and I hope future readers deal with issues that are all too often skirted. I am indebted to all four of these collaborators, Robert, Sue, Coco, and Thomas.

John D. Grace also deserves a special note of thanks. He read the manuscript with admirable care and made some especially valuable suggestions, almost all of which I have incorporated. Of course I am ultimately responsible for whatever mistakes remain, but he and the gang of four spared me from many others.

Then there are others to whom I must also express my thanks. The RIA Novosti Press Agency provided me, as part of the Valdai Hills Discussion group, with the opportunity to meet with President Vladimir Putin on four occasions extending over an extraordinary twelve hours. They also took us out to the Priobskaia oil fields and Yuganskneftegaz and arranged a meeting at Gazprom headquarters. It was as if I had died and gone to heaven. They let me come along although invariably I asked the least respectful questions.

I must also thank Kathryn Davis, whose chair I held at Wellesley College, for her interest (even at her 100th birthday party) and for her financial support. She has helped to reassure me that there was always someone out there who was as interested in Russia and its sometimes troubling ways as I was. Her son Shelby and daughter Diana share much of that same enthusiasm.

Most of all, of course, I must also thank my wife, Merle. She has to put up with a lot, enough in fact to tighten anyone’s digestive system. While I often ask myself if I can withstand another of her brutal, yes, brutal, editing jobs, in the end I have to concede, but not directly, that I and the manuscript are better off for it. But after fifty-five years, it is a testimony to the strength of our marriage that we have survived a joint husband and wife writing and editing effort. There aren’t many couples I know of who can say the same thing, but Merle is special, and our children and I can never acknowledge how much we owe her.

At first I was puzzled. Where were they taking us? For such a big, sleek, glass Moscow high rise, Gazprom’s elevator in its headquarters building was tiny (five people could barely squeeze in) and its hall corridors narrow. This was, after all, the world’s largest producer of natural gas, not to mention Russia’s largest company. Following a short walk we were ushered into a darkened, silent room where nothing seemed to be happening. Strange.

It was only when all the members of our group had made their way up on the elevators that the room suddenly came alive. Then for a time I felt as if I had wandered into the NASA Space Center, or was it a James Bond movie set? All that was missing was that out of body voice intoning, “Welcome, Mr. Goldman. We were expecting you.”

In front of me, covering the whole 100-foot wall of the room, was a map with a spiderweb-like maze of natural gas pipelines reaching from East Siberia west to the Atlantic Ocean and from the Arctic ocean south to the Caspian and Black Seas. Manipulating this display were Gazprom dispatchers, three men controlling the flow of Gazprom’s gas to East and West European consumers of this Russian natural gas monopoly. No wonder there was tight security. There was also a sense of self-assurance. As measured by the value of its corporate stock, by summer 2006, Gazprom, this state-dominated joint stock corporation (until 1992 it was actually the Soviet Ministry of the Gas Industry), had become the world’s third-largest corporation. Only private shareholder-owned Exxon-Mobil and General Electric were larger.