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New insights on the Soviet Union’s collapse
David R. Francis, Christian Science Monitor
A former Russian official blames the threat of famine, not Gorbachev’s reform policies.
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Crude oil prices last week were flirting with a record high. It’s great news – for the Russians.
Low oil prices contributed to the fall of the Soviet Union in 1991. In Russia today, high oil and natural gas prices are, to a large degree, the reason for an economic boom.
…With its massive exports of gas and oil (at least $200 billion a year), Russia has considerable economic clout in Western Europe. It supplies 40 percent of Germany’s natural gas, for instance.
…In November, the Brookings Institution will publish the English translation of “Collapse of an Empire: Lessons for Modern Russia,” now a bestseller in Russia. Written by Yegor Gaidar, an economist who was Russia’s acting prime minister between 1991 and 1994, the book uses information from Soviet archives to tell the story of the last few years of the Soviet Union. It tries to shoot down the “myth” held by most Russians that the Soviet Union was “a dynamically developing world superpower until usurpers initiated disastrous reforms.” It also warns that Russia should avoid the peril of another collapse in oil prices.
What happened, states Mr. Gaidar, is that Soviet grain production stagnated between 1966 and 1990. Meanwhile, 80 million people moved from farms to cities. New Soviet output of oil and gas was not sufficiently expanded to provide the hard currency needed to buy grain abroad. Eventually, the Soviets had to borrow foreign money to buy grain.
(23 July 2007)
The American Enterprise Institute has published a speech by Yegor Gaidar (The Soviet Collapse: Grain and Oil) in which he develops his argument in more detail.
The lesson seems to be that fluctuations in oil prices can topple empires. Another precipitous drop in oil prices does not look likely, however. What seems more likely is “the end of cheap oil” with the possibility of sharp spikes. Over-extended empires which depend on oil imports would be at risk, as would any country which does not have its oil consumption under control. -BA
Belarus: Preparing for tougher times
The Economist
Belarusian President Alyaksandr Lukashenka is reshuffling senior officials, at the same time as his energy minister is in Moscow for talks over an unpaid US$500m gas debt. The two issues are related, for cheap energy and a strong “power vertical” have been the bedrock of Mr Lukashenka’s rule. With the era of cheap Russian energy coming to a close this year, it is all the more important for Mr Lukashenka to be sure he has a firm political grip on the country.
Ostensibly, Belarus is facing an energy crisis. On July 23rd Mr Lukashenka sacked the heads of petrochemicals giant Belneftekhim, gas pipeline operator Beltransgas and state oil and products trader the Belarusian Oil Company (BOC). The three officials, who have been replaced by the government’s chief of staff, a regional governor and the deputy head of BOC respectively, have been accused by the president of failing to avert an energy shock in the country. On the same day as Mr Lukashenka was wielding the axe internally, Energy Minister Alyaksandr Ozerets was in Moscow for discussions with Russian gas monopoly Gazprom about an overdue debt of US$500m.
The gas debt is the result of a transitional arrangement reached in January, at the same time that Gazprom forced Belarus to pay US$100 per 1,000 cubic metres for its gas this year, which is double the 2006 tariff.
…Mr Lukashenka’s rule thus far has rested on two pillars: cheap Russian energy, that has allowed him to maintain near-full employment and a statist economy, and control of what his Russian counterpart Vladimir Putin calls the power vertical. With cheap energy now a thing of the past and gas supplies set to become progressively more expensive, he needs more than ever to be sure that the power vertical is a reliable support.
(25 July 2007)
Political Clashes Shake Venezuela’s Strained Oil Industry
Simon Romero, New York Times
Venezuela’s national oil company is being shaken by claims of corruption and by internal dissent, indicating fissures within the institution largely responsible for financing President Hugo Chávez’s widening array of social welfare programs and foreign aid projects.
The problems at the company, Petróleos de Venezuela, have been compounded by a rare acknowledgment by Rafael RamÃrez, the energy minister and president of the company, that it cannot hire enough drilling rigs, raising concern over its ability to halt declines in oil production.
“Our sovereignty is at risk if we allow Petróleos de Venezuela to remain in this situation,” LuÃs Tascón, a pro-Chávez lawmaker, said in a telephone interview. “We cannot allow this company to remain an indecipherable black box.” Mr. Tascón has summoned Mr. RamÃrez to the National Assembly to respond to accusations of corruption against senior executives.
Mr. RamÃrez has emerged as a focus of criticism amid claims of illegal deals with oil-services companies on his watch. The attacks on him are viewed as part of a power struggle among Mr. Chávez’s supporters, with ideological loyalists clashing with the relatively less radical technocrats in charge of the strained oil industry.
(22 July 2007)
Jeffrey Brown points out a passage indicating that Venezuela is another top 10 net oil exporter showing declining oil exports.
Venezuela, with some of the largest oil reserves outside the Middle East, officially claims to produce almost 3.1 million barrels of oil a day, but institutions like the International Energy Agency in Paris put output at 2.37 million barrels a day, down about 230,000 from a year ago.
Other energy analysts say output problems are potentially even more broadly troubling. The country’s oil exports fell 15 percent while overall production dropped 7 percent in the first quarter of this year, said Rampn Espinasa, a chief economist at Petroleos de Venezuela in the pre-Chavez era and now a respected consultant, citing both the difficulties with hiring rigs and a surge in domestic fuel consumption driven by subsidized prices.
ConocoPhillips Profit Drops; Refining Earnings Soar
Jim Kennett, Bloomberg
ConocoPhillips, the third-largest U.S. oil company, posted a smaller drop in profit than analysts estimated as refining earnings damped the impact of a write-off from asset seizures in Venezuela.
Second-quarter profit slid 94 percent to $301 million, or 18 cents a share, from a record $5.19 billion, or $3.09, a year earlier, Houston-based ConocoPhillips said today in a statement. Costs for the Venezuela exit cut net income by $4.51 billion.
Venezuela took two heavy-oil ventures and another project when ConocoPhillips refused to cede ownership. A 38 percent gain in refining profit, boosted by record U.S. gasoline prices, made up for a drop in earnings from oil and natural-gas production.
(25 July 2007)
